What is a Dapp? Decentralized Apps Explained for Beginners

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Contributor, Benzinga
April 17, 2024

SHORT ANSWER: A dApp is a digital application that runs on a decentralized network, usually a blockchain, unlike conventional apps.

Photo by Shubham Dhage

There's a new player in crypto: dApps, short for decentralized applications. These apps operate by themselves because of smart contracts and decentralized systems. Unlike regular apps, there's no boss behind dApps — ownership is spread out among the people who use them. It's like a digital playground where no one's in charge, and everyone's part of the fun. 

Let's take a closer look at what makes dApps tick and why they're shaking up the world of tech.

What is a dApp?

A dApp is a digital application that runs on a decentralized network, usually a blockchain. Unlike traditional apps that rely on a central authority, dApps use smart contracts to manage transactions and operate independently. They're built to be transparent, open-source and resistant to censorship, allowing users to interact directly with the application without intermediaries.

These applications offer various functionalities, from social networks and games to productivity tools and decentralized finance (DeFi) services. For instance, in DeFi, dApps can provide secure ways to lend, borrow, earn interest and trade digital assets directly with others, giving users full control over their funds.

A popular example of a dApp is CryptoKitties, a game where players can adopt, raise, and trade virtual cats on the blockchain. Another example is Uniswap, a decentralized exchange protocol that enables users to trade digital assets without a mediator.

How Do Decentralized Applications Work?

dApps autonomously through smart contracts, which are self-executing contracts with the terms of the agreement directly written into code.

Here's a detailed look at how dApps work.

  1. Decentralized nature: dApps function without a central authority, relying on collective decision-making by network participants. This eliminates the need for intermediaries, ensuring transparency and trust among users.
  2. Open source: Most dApps are open source, meaning their code is publicly available. This transparency fosters community-driven improvements and enhances the overall trustworthiness of the application.
  3. Immutable records: Data entered into the blockchain by dApps cannot be altered, ensuring the authenticity and integrity of the application's records. This feature provides users with confidence in the accuracy of transactions.
  4. Use of tokens: dApps often have their tokens or cryptocurrencies, incentivizing users to contribute to the network and facilitating transactions within the ecosystem. These tokens serve various purposes, including governance, access to services and value exchange.
  5. Consensus protocols: Like Bitcoin, dApps use proof-of-work (PoW) or proof-of-stake (PoS) consensus mechanisms like Ethereum to validate transactions and maintain the integrity of the network. These protocols ensure that all participants agree on the state of the blockchain.

Uses of dApps

PancakeSwap is an example of a dApp, functioning as a decentralized exchange within the Binance Smart Chain ecosystem. This trading platform enables users to swap BEP-20 tokens while providing a more seamless user experience and lower transaction fees than traditional exchange platforms. PancakeSwap stands out as a dApp, demonstrating the innovative potential of dApps, particularly in cryptocurrency trading and exchange.

Common Uses of dApps in Industry

Here are some of the common uses and applications of dApps.

  • Financial services: dApps facilitate direct financial transactions between parties, enabling seamless money transfers without the need for traditional banking services or transaction fees.
  • Supply chain management: dApps provide transparent systems for monitoring the journey of products from creation to delivery, ensuring authenticity and timely deliveries.
  • Identity verification: dApps offer secure storage and verification of identity data, simplifying the verification process when needed.
  • Real estate: dApps enable direct property transactions between parties, maintaining ownership records and ensuring deal transparency.
  • Healthcare: dApps create secure environments for storing medical records, improving communication between healthcare professionals and ensuring optimal patient care.
  • Education: dApps form the basis of decentralized learning platforms, allowing collaboration between students and educators without intermediaries for a richer learning experience.
  • Social media: Decentralized social media platforms via dApps provide users with a censorship-resistant environment for sharing and connecting without concerns about centralized control.
  • Predictive markets: dApps host platforms where users can predict various outcomes, potentially earning rewards for accurate predictions.

Pros of Using dApps

Here are some of the top pros of using dApps:

  • Safeguard user privacy: dApps do not require users to provide personal data to access features, ensuring privacy and security.
  • No third-party involvement: dApps promotes smooth transactions between parties without a centralized authority, enhancing security and trust.
  • Reduced interruptions: dApps are flexible and robust, operating on peer-to-peer networks, leading to minimal interruptions in service.
  • Data preservation: Data stored on dApps is actively safeguarded, reducing the possibility of replication or destruction even in the face of hacking attempts.
  • No censorship: Content on dApps is resistant to deletion or alteration, promoting a free exchange of information without centralized regulations.
  • Cost-effectiveness: dApps have lower maintenance costs because of shared network usage, simplifying data management compared to centralized applications.
  • Flexibility: dApps are flexible, allowing for the development of innovative applications across various industries like banking and e-commerce.

Cons of Using dApps

Here are some of the potential risks of using dApps:

  • Token approval exploits: Users may unknowingly provide dApps full access to their tokens, allowing attackers to withdraw all of the user's holdings of that specific asset without consent.
  • Phishing attacks: Users of dApps are susceptible to cyberattacks like phishing, where fraudsters attempt to obtain private keys by tricking users.
  • Immaturity: Unlike centralized apps, dApps are immature, often lacking in user interface and experience.
  • Regulatory uncertainty: Developing dApps involves navigating regulatory uncertainty as new standards and regulations emerge in the rapidly evolving landscape.
  • Privacy and security risks: Data stored on dApps' distributed ledgers is exposed to anyone accessing the blockchain, posing privacy and security risks.
  • Performance risks: dApp performance depends on factors like network congestion, transaction fees and consensus protocols, leading to variability in user experience.

What is the Difference Between an App and a dApp?

The main contrast between an app and a dApp lies in their backend infrastructure. A dApp's backend code operates on a decentralized peer-to-peer blockchain network, while an app's backend code typically runs on centralized servers. 

This decentralized structure offers several advantages that centralized apps lack.

  • Privacy: Using a dApp often doesn't require divulging personal identity information, as transactions and interactions occur securely on the blockchain, preserving user privacy.
  • Transparency: dApps operate in an open-source environment, ensuring transparency and preventing manipulation or interference by any single entity or authority.
  • Security: The decentralized nature of dApps makes them more resistant to censorship and less vulnerable to single points of failure, enhancing overall security.
  • Immutability: Transactions conducted on a dApp are recorded on a blockchain, making them immutable and safeguarded against tampering or deletion.

In contrast, apps are centralized, meaning they are owned and managed by specific companies. These apps store their software on servers controlled by the company. While they offer convenience for various tasks like ordering food or managing finances, they often collect user data, potentially compromising privacy. This data may be sold to third-party apps for profit generation.

dApps: What Are They And How Are They Benefit the Modern World

dApps represent a significant advancement in software technology, offering unparalleled trust and resilience. Unlike traditional apps, dApps function on decentralized networks like blockchains, free from the control of any single entity. This decentralized architecture unlocks several advantages, including transparency, security, censorship-resistance and privacy. However, alongside their benefits, dApps also pose some challenges. These challenges include complexity, scalability and regulation issues. 

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Ishan Jain

About Ishan Jain

Ishan Jain is a technical enthusiast with a knack for financial analytics and trading. Ishan primarily works on AI algorithms, business development, and software engineering for his ventures and side projects, and he produces Web3 content for Benzinga. Ishan has been involved in DeFi in a variety of ways, including heading a project at a crypto asset investment firm along with leading a blockchain security research project.