Decentralized applications, or DApps, function much like the apps you use daily, but instead of relying on a centralized server, they operate on a blockchain network. Examples include 3Balance and Qoda DAO DApps, the partner decentralized applications of the Qoda Finance Ecosystem.
Read below about what is the difference between DApps and traditional applications, what they are used for and their place in web3.
What are DApps?
A Decentralized Application (DApp, dapp, or dApp) is a software application/program that runs on a blockchain instead of a single server or computer. DApps utilize the features of the blockchains they're built on to provide enhanced security, transparency, and autonomy compared to traditional apps.
Let’s start by distinguishing between traditional, centralized apps and DApps to better understand them.
Centralized applications are fully controlled by their owners. For example, when you use a bank's app, the bank provides all the core functionality and has full control over it. When a user transfers funds from card to card, the bank can cancel the transaction, impose certain restrictions, or disclose the full data of both parties.
The situation with decentralized applications is different. They provide users with an interface for interacting using blockchains or p2p networks. The interaction itself is performed by automated smart contracts (introduced and made initially on Ethereum; expanded to L2s and other L1s later). Users interact with each other in a permissionless environment based on the available functionality and remain anonymous.
Since the execution of smart contracts is automated and guaranteed, DApps do not need centralized intermediaries like payment systems or banks for their execution.
Typically, such applications meet the following criteria:
- They are decentralized (hence the name)
- They run on a blockchain or p2p network
- They’re often open-source
- They’re censorship-resistant
- Their economy or governance is based on their token
Here are some well-known DApps: Uniswap (DEX), Aave (lending protocol), Metamask (crypto wallet) Pendle (yield farming), Opensea (NFT marketplace), Axie Infinity (game), DeBank (portfolio tracking), 3Balance (portfolio management), Sky (ex-MakerDAO, decentralized stablecoin), CyberConnect (social), ENS (identity), etc.
What are dApps used for and why do we need them?
It may seem that DApps are related to DeFi, as this is the main use case for finance on blockchain. However, decentralized applications exist in many sectors outside of finance: gaming, entertainment, social goods, restaurant and hotel business, and social media to name a few. Almost everything we know from the world of “traditional apps” can be built on blockchain as a DApp. The only question is the need and motivation.
What makes DApps a good choice for both developers and users?
Accessibility
In many countries, people don’t have access to quality banking services. To use decentralized financial apps, you only need the Internet which can provide better access for many.
Transparency
Blockchain DApps are more transparent in their work. Anyone can check the records of transactions and other activities on-chain at any time.
Cost
The absence of intermediaries and bureaucratic procedures often makes DApps faster and cheaper.
Privacy and Security
DApps cannot disclose or lose their users' personal data because they don’t have access to it. In addition, blockchain offers greater security for some business processes due to its cryptographic nature.
Using DApps can also bring some risks and challenges.
Risk of scams and exploits
Some DApps are launched by unscrupulous developers with the sole purpose of deceiving their users. Legitimate DApps are also subject to hacker attacks and exploits of smart contracts, as a result of which customers' funds can be stolen.
Sophisticated onboarding and UI/UX challenges
DApps require more technical expertise to use them. Their interface is not always user-friendly, sometimes it’s very different from the experience of traditional apps that users know. In addition, the field is young and many applications aren’t as functional as their centralized counterparts.
Regulatory risks
While DApps provide anonymity, they can also be used by criminals for illegal activity, for example, money laundering. Governments and intergovernmental organizations are paying attention to this and discussing the regulation. Therefore, depending on the jurisdiction and its laws, users may face risks.
Scalability
Some DApps, especially those built on “old” blockchains like Bitcoin and Ethereum, can lack processing speed and capacity, which results in slower transactions and high costs during peak periods.
What are the most popular DApps?
If you’re relatively new to crypto, you can discover the most popular DApps in the next main sources:
- Analytics Platforms. Platforms like Defillama offer a list of existing DApps divided by categories, networks, etc., where you can check their volume, user base, and APRs.
- Ecosystem Portals. Ethereum, Arbitrum, Binance Smart Chain, Base, etc. – all the major blockchains have their lists of integrated DApps.
- DApps Aggregators. For example, Coinbase has a Web3 section on its website where its users can access decentralized apps with a Coinbase wallet or mobile app. Dappradar, Magic Store, and TheDappList are other examples of such aggregators.
Be careful! The listing on one of the sources above doesn’t guarantee full security. Do your research and interact with the DApps you trust only.
Conclusion
DApps are built on different blockchains with decentralization in mind. This means they don’t rely on a single authority to run their operations. Dapps are the heart of the web3 idea.
Examples of decentralized applications can be found in different fields, from financial services and privacy-first tools for developers to gaming and social media. All of them have advantages and disadvantages users should consider before using them.
Qoda Ecosystem is a DApps hub that focuses on on-chain credit markets and asset management. Visit our website to discover more.