Cryptocurrency Technology Beginner

DApps Explained: Everything You Need to Know About Decentralized Applications

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Cryptocurrencies are commonly known as investment assets. However, the technology underlying cryptocurrency offers so much more than that. One of the innovations that are introduced by crypto is DApps (decentralized applications). In this article, we will learn more about DApps and how they are transforming the digital world.

Article Summary

  • 📱 DApps are digital applications or programs that run on a blockchain network and use smart contracts to store the entire programming of the application.
  • ⚙️ There are three main components in a DApps: smart contracts, decentralized storage, and consensus mechanism.
  • 🏆 The advantage of DApps over regular apps is security due to its decentralized network, censorship-free, and open-source.
  • 🔍 Scalability and UI/UX quality are still the main problems faced by DApps. The emergence of layer-2 technology is a solution to the scalability problem.

What is DApps?

DApps are blockchain-based that enable users to engage with smart contracts deployed on the blockchain. In terms of function and usability, DApps are not much different from traditional applications today. However, as DApps are built on a blockchain and use smart contract technologies, they have several features that differentiate them from regular applications.

What differentiates DApps from traditional applications is decentralization

Some of the features that DApps have are all information and data must be stored on a public blockchain. It makes DApps decentralized, so they do not need a third party to manage their operations. In addition, every DApps must be open-source, where the source code used can be accessed by everyone. Below are some examples of the implementation of smart contract technologies in the crypto world.

Key Components of DApps

The main component in the creation of DApps is smart contracts. They are the backbone of DApps because they ensure that the system logic of a DApp can work as intended. The way smart contracts work is very logical. Because they follow a structured formula of ‘if, when, and then.’ That formula is written in code on the blockchain. Thus, the contract will be executed automatically if every condition is met. On the other hand, the contract cannot be achieved if any of the conditions are not met.

Given its decentralized nature, DApss also uses decentralized storage. Decentralized storage is a type of storage that is based on a decentralized network rather than managed by a single centralized entity. Thus, data will be stored on various nodes spread out, increasing security while reducing the risk of hacking. The use of decentralized storage also gives users complete control and ownership. InterPlanetery File System (IPFS) and StorX are examples of decentralized storage systems.

In DApps, the consensus mechanism is another crucial aspect that ensures their security. Since DApps are built on existing blockchains, the node operators in the network play a vital role in preventing any manipulation by external parties. This is achieved through the consensus mechanism, which can be Proof-of-Work (PoW), Proof-of-Stake (PoS), or other types. The blockchain rewards these node operators with tokens for verifying transactions on DApps.

NameDApps TypeAboutWhat makes it Attractive
Uniswap UniswapDEXThe leading decentralized crypto exchange for the Ethereum blockchain. learn more here.– The go-to DEX protocol for crypto traders.
– Ranked as the DEX with the largest TVL and trading volume.

DeFiThe leading liquid staking protocol in the Ethereum blockchain. Learn more here.– DeFi Apps with the highest TVL at the moment, reaching US$12.65 billion.
– Lido’s liquid staking tokens are compatible with various other DeFi apps.
AAVEDeFiThe leading lending protocol for crypto assets. Learn more here.– The top Lending protocol option for crypto traders.
– Lending protocol with the highest TVL to date, reaching US$5.14 billion.
OpenSeaNFT MarketplaceThe world’s first and largest NFT marketplace. Learn more here.– NFT marketplace with the most traders and a huge variety of NFT collections.
– It has the OpenSea Pro platform to facilitate professional NFT traders.
The SandboxGamingA decentralized virtual reality platform and the first-ever virtual world owned by its users. Learn more here.-Join live parties, fashion shows, explore, and build the metaverse.
– One way to enjoy the Web3 experience – actually build it.
ENSDomain RegistrationA DApps that provide a naming system for wallets, websites, and metadata. Learn more here.– Allows users to change the address name as per preference.
– Makes it easy for users to send crypto assets and NFTs.

Benefits of DApps

  • 🔒 Privacy. As all data and records are encrypted and stored in a decentralized blockchain, the privacy of each dApps user will be protected and safe from hackers.
  • ⚡ Efficiency. Using P2P networks means that DApps will continue to run even if a computer or part of the network is experiencing problems. This also means that there are no specific points of attack for hackers.
  • 🆓 Free from Censorship. No one can prevent users from reading data or making transactions on DApps. Any data and transactions that have been published cannot be deleted or modified.
  • ⚖️ Open Source. DApps use source code that the public can access. By doing so, developers can carry out comparative studies and create DApps with better utilities. DApps Advantages DApps Drawbacks Privacy Scalability Trust Unfriendly UI/UX for new users Open source Irreversible Smart Contract Resistance to censorship.
DApps AdvantagesDApps Drawbacks
TrustUnfriendly UI/UX for new users
Open sourceIrreversible Smart Contract
Resistance to censorship

Challenges Faced by DApps

Currently, the main challenges faced by DApps are Scalability and user experience. These two problems are the cause of the low adoption rate of DApps. In terms of scalability, as we know, the number of transactions that Ethereum can process is currently only 30 TPS. It’s still far from Vitalik Buterin’s target of having Ethereum process 100,000 TPS. With its low scalability, mass adoption of DApps is still difficult because transaction processing will take longer with more users.

On the other hand, the UI/UX displayed by DApps is undeniably far from perfect. It is also not friendly to new users or those with minimal crypto backgrounds. As we know, UI/UX that is easy to understand by all users is an important key for the mass adoption of DApps. Furthermore, considering the number of users is still minimal, it can also affect the service and security of the DApp itself.

The use of layer-2 is one of the solutions to overcome the scalability problem. Layer-2 is a separate blockchain built on top of the layer 1 blockchain to overcome network scalability problems. So, layer 2 is to speed up the transaction process, reduce transaction costs, and provide expanded use cases. So far, layer-2 has helped optimize the transaction speed of DApps built using layer-2 technologies such as optimistic rollups and zero-knowledge (ZK).

The number of DApps at the moment
The number of DApps has now reached 14,212. Source: Dapp Radar

Looking at the data from DappRadar, currently, 14,212 DApps are in operation with 1.77 million daily users. Considering that the DApps industry and the blockchain ecosystem are still in the early phase, these numbers show promising prospects. This is because there is still great potential for implementing and expanding the use of DApps in the future. Undeniably, the widespread adoption of DApps still has a long and winding road ahead. However, when all these problems can be fixed, the mass adoption of DApps is only a matter of time.

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