What Are Decentralized Applications?

One of the many use cases of blockchain technology is the ability to create decentralized applications. These can be abbreviated as Dapps, DApps, or dApps. They are a sharp contrast to the traditional centralized applications as they focus on decentralization. Essentially, a decentralized application runs thanks to the various users on a decentralized network that has trustless protocols. This allows for the avoidance of a single failure point and lets the applications take advantage of other decentralization benefits.

A Closer Look at Decentralized Applications

It is very important to distinguish that you do not need to use the blockchain in order to create or run a decentralized application. In fact, there have been decentralized applications for as long as we have had P2P networks. Some examples of dApps of a traditional nature that do not rely on blockchain include Tor, BitMessage, Popcorn Time, and BitTorrent. The advent of the blockchain simply makes it significantly easier to develop and run dApps.

Decentralized vs Centralized Applications: The Difference

The main difference between a traditional centralized application and decentralized applications is where the backend code runs. In the case of a traditional application, this is on a centralized server. By contrast, dApps run their backend on decentralized networks of a peer-to-peer network.

dApps and Smart Contracts

Many find that exploring the relationship between decentralized applications and smart contracts makes it easier to understand the fine points of dApps. This is best done via an understanding of how websites function. Traditionally, web applications render pages with Javascript, CSS, and HTML. They will also use an API to get details from a database. In other words, traditional websites go from the front end to the API to the database.

dApps work in a similar way and rely on identical technology for rendering the front page. The difference is that with dApps, you do not use an API to connect to the database. Instead, you use a smart contract that connects to the blockchain. As such, dApp-enabled websites go from the front end, to a smart contract, and to the blockchain.

Requirements for Blockchain dApps

As mentioned, an application can be decentralized without using the blockchain. There is, however, a separate definition of a decentralized application within the blockchain context. In many cases, but not all, when someone refers to a dApps in this context, they mean a blockchain dApp.

To be a blockchain dApp, an application must be fully open-source. Because of this open-source nature, dApps let all network participants track changes. It must be able to operate in an autonomous manner without any entity in charge of it. Users must decide changes via some consensus mechanism. This allows for adjustments to market feedback and proposed improvements.

Speaking of the consensus, that consensus must be decentralized. The majority of nodes will first approve a transaction before the dApp can finish processing it. This is in contrast to the typical centralized consensus mechanism that was essentially a single person or company pushing transactions forward.

Additional Requirements

Additionally, dApps on the blockchain must use cryptographic storage for data as well as records of operation. This storage must be on a decentralized blockchain that is public. This requirement eliminates the possibility of a central point of failure. Instead, the data stored on dApps is decentralized across various node, all of which are independent. If a single node, or even several nodes, fail, the network will continue to run.

Blockchain decentralized applications must also use some sort of cryptographic token. This can be in the form of its own native token or an existing one, like Bitcoin. That token must be necessary for accessing the app. There should also be a mechanism in place to reward farmers or miners with the token in exchange for their value contributions. Finally, the app must generate tokens. The algorithm used for this process can vary, with Bitcoin using Proof of Work.

Consensus Mechanisms for dApps

More consensus mechanisms for dApps may develop in the future, but the most common are currently Proof of Stake (PoS) and Proof of Work (PoW). PoW distributes rewards based on the work stakeholders contribute to the dApp or network. It is the method for Blockchain, which uses mining to deliver the PoW rewards.

PoS makes decisions based on percentage ownership. If, for example, a single person owned 10 percent of the tokens a dApp issued, they get 10 percent of the vote. This is used in the Omni Protocol. In addition to other algorithms being used, some dApps use a combination of algorithms.

Typical Development Process for dApps

Every decentralized application undergoes a slightly different development process, but they tend to follow the same key steps. They will typically begin with a whitepaper that describes the application as well as its features. In the best cases, it includes a working prototype. This is followed by a token sale and an initial coin offering to spread the ownership of the dApp. Using the funds raised, the decentralized application can continue the development and expansion of the project.

Types of dApps

Based on the Ethereum whitepaper, you can divide decentralized applications into three different types. Financial blockchain apps focus on providing money- and finance-management solutions. Bitcoin, for example, provides decentralized monetization.

Semi-financial blockchain applications combine money with information outside of the blockchain. An example would be an insurance app that provides a partial return on a flight if it is delayed. ICO apps are another example.

Fully-functioning decentralized applications have all the features of distributed and decentralized systems. They do not require any financial elements. Example use cases include decentralized governance or online voting.

The Takeaway

Decentralized applications provide all the benefits of decentralization in an application. These are open-source applications that can serve a range of purposes and have no central point of failure.




Steven King
We’re a new age Broker providing clients access to the Global Financial Markets by using only Crypto Currencies.