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What are dApps and their place in Ethereum » CryptoNinjas

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Anything decentralized is all the rage in 2022. Blockchain and decentralized services remain among the top Google trends and are sparking discussions around the world. DApps, or decentralized applications, occupy a privileged place in the debates, being one of the pillars of decentralization.

According to the state of Dapps, the market hosted more than 4000 decentralized applications with more than 110K daily active users. Axie Infinity, Katana and OpenSea have attracted thousands of users and are growing by leaps and bounds. It is therefore not surprising that dApps are a bankable opportunity for investors and companies. But what is a dApp?

Today we’re going to go over the fundamentals of decentralized apps and see if it’s a worthwhile investment for years to come.

What are dApps?

Most of your basic apps like Instagram or Google Docs share the same basic structure. There is a client application on your device, while the server is installed somewhere on the central system.

Whatever your type of application, local client applications synchronize your data with the central system, thus transmitting critical information to the central server which has full control over your data

Unlike traditional applications, a decentralized application is built on a decentralized network that combines a smart contract and a front-end user interface.

From the end user’s perspective, dApps look almost identical to a standard mobile app. Yet the main difference is that not all data and the backend are stored centrally on a server. This means that no centralized entity exercises authority or control over your data or your movements within the application.

Under the hood of decentralization

So how do dApps work? Any decentralized application is made up of back-end code that runs on a peer-to-peer network.

A user interface can also be established by front-end code that makes back-end calls in a dApp. Therefore, dApps users interact with the back-end code i.e. smart contracts to call the app functions.

Used as a back-end, smart apps are programs that run when predefined conditions are met. Thus, they automate transactions and verify when the parties fulfill the conditions.

Other key dApps differentiators include:

  • Open source code that runs autonomously and no one entity has control over most tokens;
  • dApps generate tokens to reward participating nodes;
  • dApps are accessed via tokens;
  • Miners receive tokens as rewards for their significant contributions to the ecosystem.

Decentralized applications and Ethereum

Being one of the largest blockchain platforms, Ethereum is home to the majority of dApps. It is basically an application development platform based on decentralized blockchain technology. Since it is the primary platform for hosting smart contracts, Ethereum is most commonly associated with decentralized services. Therefore, it is the go-to platform for building dApps, as it already offers a variety of tools for dApps development.

Main applications of dApps

Unlike most technological innovations for purely theoretical use, decentralized applications have already transformed into practical and widely used services. Let’s take a look at the most popular ones.

Decentralized finance

The unmediated financial ecosystem has long been an inaccessible business. However, smart contracts and blockchain have launched DeFi solutions that now represent an estimated market value of $12.7 billion. Here, the decentralized applications present themselves as a client-facing interface that allows users to communicate with a particular DeFi service, be it lending or exchanges.

Non-fungible tokens

Just like with DeFi, dApps integrate the use of NFTs into software applications. Non-fungible tokens can be used to represent different types of underlying assets. These can include physical objects, works of art and the like.

For example, OpenSea, which is the largest NFT marketplace in the world, offers an unparalleled selection of assets to buy and caters to over 80 million NFTs. Another striking example of an NFT solution is Axie Infinity. This NFT game invites users to a digital pet community where they can explore, breed and buy Axies.

Communication

Another widespread application of dApps is their presence in the social media ecosystem. While traditional social networks grant little or no control to their users, communication platforms dApps return more user activation and provide more control over user data. Minds is a decentralized Facebook alternative that allows users to post content and exchange secure messages with other members of the network.

Crypto Wallets

This type of application stores users’ private keys. These are unique digital codes that facilitate cryptocurrency transactions. Crypto wallets differ widely, with the most popular being hosted wallets, non-custodial wallets, and hardware wallets. Exodus is a popular multi-asset crypto wallet that allows users to buy, trade, and earn interest through an easy-to-use interface.

Main disadvantages of dApps

Apart from added value such as decentralization and security, decentralized applications have some disadvantages.

Due to their immutability, dApps are harder to maintain. This means that once your dApps are on the mainnet, it’s difficult to update or fix a bug. The high costs and the complexity of use are among the disadvantages that scare away new users and investors.

Additionally, UX of dApps is difficult to create due to in-app design requirements and lack of expertise of UX/UI designers. Unlike traditional mobile and web applications, decentralized applications have different user experience requirements, which makes design a difficult and unexplored area.

Finally, network congestion weighs on the performance and speed of dApps. The current processing speed of DApp networks stands at 10-15 transactions per second. If an application gobbles up excessive computational resources, it affects the entire network.

However, the majority of these drawbacks can be eliminated as the dApp ecosystem matures. Therefore, the disruptive potential of decentralized apps shines brighter than their downsides.

The last word

Dapps will continue to grow at an exponential rate in the years to come. While a fully decentralized utopia is unlikely to materialize anytime soon, the year 2022 is expected to see significant improvements and the spread of blockchain technology and its applications.

In particular, decentralized apps are uniquely positioned to support censorship resistance and return more control over their content to users. However, dApps are still haunted by a number of drawbacks that stem from the immaturity of the network. As decentralization gains traction, we will see the full potential of blockchain-based solutions.