What is a DApp? Decentralized Applications on Blockchain

Most of the applications we use today are centralized, meaning they are controlled by a single authority. For example, Google and Facebook maintain complete ownership of their respective products, using private servers and databases to run their apps and store user information.

While this centralization gives Google and Facebook control over their applications and user experiences, it can discourage users. Users of centralized apps have limited agency over their data or experience within an application. They must trust the company behind the app to listen to their feedback, to provide product services, and to treat them and their data with respect. However, with Google, Facebook, and other centralized applications facing backlash over privacy and the monetization of user data, many users have become reluctant to trust centralized applications. Developers can address these growing concerns by avoiding centralization altogether, guaranteeing users control over their own experiences and information via decentralized applications, also known as dapps. Dapps allow users to transparently complete transactions, verify claims, and collaborate without needing to trust a centralized intermediary.

A decentralized application (short for DApp) consists of smart contracts visualized on a front-end and executed on a peer-to-peer network. The front-end could be a website and consists of HTML, CSS, and JS code. The backend, for example, consists of smart contracts written in solidity. DApp could run on the Ethereum Blockchain because it is a peer-to-peer network. And because decentralized applications use blockchain technology, they are not controlled by a central authority. This means that we don’t need a central server for DApp.

The following example should help you understand how DApps work. You probably know the car manufacturer Volkswagen. For example, they are negotiating a new contract with a tire manufacturer. Contracts like Global Agreements (GVA), Data Protection Agreements (DPA), or the Service Level Agreement (SLA) are set up. As you can see, there are many policies and contracts. Therefore, this often leads to disagreements and problems during contract negotiation. Consequently, negotiations can take several months and result in high costs.

Contract negotiations as we know them are:

• Not transparent: there is no overview due to a large number of documents and versions.
• No security: third parties can easily access the documents sent by email.
• No trust: No one knows if the documents have been changed

We can easily solve these problems with a DApp. Ethereum provides the foundation for this. You can compare it to a dropbox. This way, multiple parties can work on a document at the same time. Unlike Dropbox, the files are not on a central server but a decentralized server.

As a result, everyone has a copy of the contract. This prevents unauthorized people from changing the files without being noticed.

With a Dapp, we achieve the following:

• Transparent: All participants can work on the same documents.
• Security: Documents are available to everyone in the blockchain and are stored in encrypted form.
• Trust: A hash is generated for each file. We trust the system because the files cannot be changed unnoticed.

Open source software has a source code that is freely accessible. This means that everyone can influence the software. So anyone can look at the software and reprogram it.

A DApp also has an open-source code. This works independently of a central instance. So no admin decides about the future development. Therefore, a DApp must adapt to changes or market reactions. Only selected developers who have a token have access to the source code.

A token is a digital unit. This unit represents a copy of a record in a blockchain. The word token can have several meanings in this context and thus fulfills several functions. So the function depends on how we want to use the token. To make changes on a DApp, you need such a token.

DApps also need to be secured, and miners want a reward for their work. Using the proof-of-work algorithm, it can create tokens to reward miners.

When an application is built on a P2P network, such as a distributed ledger, each member of that network contributes to the program. From computing power to storage, each of the roles that a central server would normally fill are distributed across the network. Developers do not need to maintain and secure a central server, and users can directly participate in running the app.

Unlike centralized applications, decentralized applications have no single point of failure. Centralized applications rely on centralized servers to run programs and store vital user and application information. If a single, central server is compromised, the entire application might fail. In contrast, decentralized applications run across a network of public nodes and have distributed copies of important information among them. If a single or even multiple nodes are compromised, the application is unaffected. A decentralized application can only be “hacked” if a significant percentage of the network is attacked, simultaneously.

Moreover, if a malicious actor manages to attack the network, any alterations are transparent on a public network, allowing both users and developers to react promptly. When a dapp runs on a public ledger, any person with internet access can participate in the application and the network. As such, anyone can view the record of transactions and any changes made to those records. The result is a level of accessibility and transparency beyond what centralized applications can provide. In its full promise, no central entity can revoke transparency, limit viewership, or censor participation on a public distributed ledger.

With their combination of security, transparency, and decentralization, Distributed Ledger Technology (DLT) based dapps enable trusted interactions between untrusted peers. Decentralized applications are useful for building trust between users while exchanging assets, verifying claims, and collaborating.

Today’s applications moderate transactions via a central intermediary. Whether this intermediary is a physical person or a digital protocol, the exchange is out of the users’ control; the intermediary could alter the transaction and the user would be none the wiser.

In contrast, when dapp users agree to a transaction, they can trust that their exchange will be carried out perfectly, or not at all. Dapps can ensure the validity of transactions using a feature of DLTs called atomic swaps, through a smart contract. Atomic swaps are the exchange of digital goods that, once agreed upon, cannot be altered; either the swap occurs without alteration, or the smart contract denies the swap entirely. Therefore, users play a part in moderating their own transaction, and they do not have to trust any individual network member or central entity to process their transaction properly.

Beyond trusted transactions, dapps can also verify ownership of a digital claim, in a secure and reliable way. To represent digital assets, dapps use cryptographic tokens. As their name implies, these tokens are cryptographically protected, giving them unique identifications and making them extremely hard to reproduce. Moreover, token ownership is recorded on a distributed ledger, meaning that every member of the P2P network knows who owns which crypto tokens. With secure, distributed information and cryptographically protected assets, dapps can reliably verify claims and protect those claims from attackers.

Providing trustworthy claim verification and asset exchange, dapps are the perfect tool to enable collaboration across large, untrusted networks. Without a central intermediary determining a final decision, all members of the network are equally valued in the collaboration. They can directly provide information and assets to other members, and any decisions made to update records or carry out transactions must be validated by the true consensus of participants. In this way, dapps enable a truly fair and democratic collaboration, which can be useful across nearly all industries and projects.

Ethereum has become the primary growth driver of the dApp ecosystem. This is largely because of its smart contracts, network effect, and user base. As the decentralized finance (DeFi) market expands its use cases and adoption, dApps present an essential on-ramp to new audiences by deploying user interfaces that emulate conventional web applications while accessing the new capabilities of blockchain. In doing so, dApps are in many ways expanding the functionality of the internet through blockchain.

Regardless of the underlying blockchain in use, interest in dApps is growing fast — and the movement has only just begun. As blockchain continues to develop at a rapid pace, it’s probable that finance, gaming, online markets, and social media will all become blockchain-based dApps.