What is the big deal about dApps in cryptocurrencies? Decentralized applications aim to decentralize many conventional real-life processes through the use of blockchain and smart contract technology.

Cryptocurrencies are no stranger to many buzzwords such as blockchain, altcoins, and HODLing. However, one particular term cryptocurrency enthusiasts hope will become colloquial is ‘decentralized applications.’ 

Also known as dApps, decentralized applications are a unique feature to digital currencies aiming to solve real-life problems mainly of authoritarian control, server distribution, privacy, third-party verification, and restriction. 

We can trace the roots of dApps to Satoshi Nakamoto, the mysterious inventor of Bitcoin, who had the ambitious vision of decentralizing money. Almost like passing the baton, dApps aim to decentralize just about everything else possible.

This article will cover what a dApp is, how it technically works, the advantages and disadvantages of such an innovation, and some actual examples that currently exist.

Defining decentralized applications 

Defining decentralized applications

A decentralized application is merely a software application with distributed computing across multiple computers rather than one dominant server. These applications run on a decentralized network where no authority has any decision-making power.

Using a hypothetical example to illustrate better how a typical dApp would work, let’s look at an everyday application like Facebook, which runs from a centralized server with a host of company-elected moderators. 

Facebook is a centralized application because, although its users are free to post whatever content they like, the corporation can still control and restrict this data. Furthermore, if Facebook experienced a network outage, as it relies on a centralized server, users could experience indefinite downtime. 

Now a dApp version of Facebook would mean users can post any content without censorship. Having the luxury of multiple network nodes means the chance of downtime is slimmer, ensuring an application that’s constantly running. 

The lack of a central authority also results in internal processes running efficiently through written code containing pre-programmed instructions on a blockchain.

Why dApps? 

What we’ve just described above is a rough overview of a typical dApp. Although to truly appreciate the concept, we must understand many traditional applications (both online and offline), aside from social media networks, are being disrupted through the use of dApps.

Imagine a world in the not-so-distant future where a Facebook-esque social network operates with minimal downtime, where personal data can be private, where there is no resistance to censorship, where there is a trustless network running the system, and users could even be rewarded tokens for their contributions.

Greater adoption for a social media application of this magnitude is what a decentralized application aims to achieve.

The smart contract

The smart contract

Smart contract technology is the oil fueling the engine of most decentralized applications. The concept was pioneered by Ethereum in 2015 as a means to employ a trustless and autonomous system not requiring human verification. 

Smart contracts are computer programs with pre-coded, self-executing instructions existing on a blockchain. After the conditions in the smart contract have been met, there is automatic execution. Another vital point is smart contracts are irreversible, transparent, and trackable. 

Smart contract example

To better illustrate the idea, let’s look at an example involving a freelancing platform, like Upwork. In this model, there are always three parties involved in every transaction; the client, freelancer, and Upwork as the middleman.

Upwork creates the contract and oversees the job, and then charges a commission. Now, what if we removed them from the equation? The blockchain of a decentralized application can create a smart contract overseeing all instructions and T&Cs for that job instead.

The freelancer would get paid automatically without any commissions to any party upon successful completion of the job. If we ponder the number of situations with an intermediary involved in a transaction, we should see how powerful a decentralized application can be.

Examples of dApps 

The real-world utility of decentralized applications is the meat of this article, which will help us appreciate what currently exists and the untapped future potential. Presently, some of the cryptocurrencies supporting dApps are Ethereum, Ethereum Classic, Cardano, NEO, Stellar, and EOS.

The list below is not exhaustive as we are only outlining some of the popular applications in this field.

Freelancing platforms

The previous section’s example is from a currently existing platform on Ethereum known as Ethlance. Ethlance works very similarly to many mainstream freelancing platforms, except there is no central body, and freelancers receive payments in Ether very quickly with zero commissions.

Ethlance is an intuitive and decentralized freelancing marketplace connecting clients and freelancers to work opportunities. Smart contracts ensure the completion of jobs according to predetermined objectives, and payments are released immediately afterward.

DeFi platforms

A subset of dApps is known as decentralized finance (DeFi for short). DeFi embodies the spirit of decentralization and is attempting to replace many financial interactions relying on banks, governments, brokerages, and other third-party authorities.

Crypto lending forms part of DeFi where users can borrow money using cryptocurrencies as collateral without credit checks and at better interest rates than traditional credit providers. 

Furthermore, lenders can receive this interest from their holdings or keep the coins in a savings account offering more favorable APY (annual percentage yield) than your average bank. Examples of such platforms include the likes of Hodlnaut, YouHodler, BlockFi, Nexo, among many others. 

Social media platforms

Another growing niche in the realm of dApps is decentralized social networks focusing on powering communities in a censorship-free, privacy-conscious, and token-rewarding environment.

A prominent example is the blogging and social media site known as Steemit, which runs on the Steem blockchain and incentivizes users with their native digital currency, STEEM, for creating and upvoting content.

The other arenas where dApps will likely have an impact are banking, real estate, advertising, identity verification, voting, insurance, and so forth.

‘The bad and the ugly’ about dApps

For all the tremendous benefits of these applications, there are still some notable concerns. Cryptocurrency enthusiasts point to logistical and user experience issues. On the logistic side, dApps can prove more difficult to maintain through matters of network congestion and the challenge of scalability. 

These applications can also be a little confusing for the laymen initially. Others have pointed out that, for example, in a social media website like Steemit, since a blockchain is immutable, it cannot delete posts with comments or votes. 

Furthermore, some fear dApps may eventually morph into centralized platforms where developers may ask for sensitive information or make structural changes without mutual consent.

Conclusion

As we’ve just seen, dApps are all about enforcing a trustless, transparent environment that rids the user of intermediaries and central authorities to ensure data integrity, uninterrupted experiences, privacy, and resistance to censorship, among other benefits. 

It should also make us realize cryptocurrencies can do much more than just act as a digital money form.