The world of cryptocurrency is filled with acronyms and unique terminology. If you are a crypto investor or a person who is interested in the blockchain concept, understanding this unique language is essential.
One of the most unusual acronyms in the cryptocurrency world is ‘Dapps,’ short for decentralized applications. These decentralized apps are everywhere, but what are they exactly, and how do they work?
The importance of the decentralized application goes far beyond the world of cryptocurrency – to the internet itself. The nature of the internet and how it was initially designed means that users do not retain complete control over the information they share when they visit a website.
Many experts consider this fact a fundamental flaw in the design of the internet. Ethereum, one of the most popular cryptocurrencies in the world, is attempting to use its blockchain in a manner that helps correct this inherent flaw in the design of the internet.
There are a number of decentralized applications that aren’t based on blockchain technology. BitTorrent, the famous torrenting site recently acquired by Tron, has always been a peer to peer file discovery network with no centralized authority. Likewise, the privacy-preserving browser, Tor, has no centralized organization and instead relies on remote servers to power its infrastructure.
However, the term ‘Dapps’ has now widely come to mean those applications which run on top of blockchain or Web3 technology, rather than just a p2p network.
What are the Benefits of Dapps?
There’s nothing inherently wrong with the applications we use today, either mobile or desktop-based – it’s just that Dapps have the potential to be much more efficient. But in a world which is becoming increasingly ‘decentralized,’ it’s easy to get drawn in by buzzwords. So, what are the main benefits of Dapps?
Connecting Users Without a Middleman
Decentralized applications are designed to connect users and service providers, without the need of a middleman. This is a very different concept than the traditional applications, which rely on the use of middlemen to complete transactions and provide trust.
When you bring up the Uber app on your phone, your information goes to Uber, and the site connects you with available cars in your area. Without the Uber middleman, there is no car and no safe ride home at the end of the night.
Instead, Dapps would empower users and service providers to transact directly with each other, in a process known as disintermediation. This way, users will have access to an immutable record of any transactions on the blockchain, and use smart contracts to make sure both sides act honestly.
Research has shown that current applications pose many security risks, principal among which is the fact that they are based on a centralized server. Not only does this increase the likelihood that user data will be exposed to malicious parties, but it also serves as a single point of failure.
For example, one of the most common methods of bringing a service or app down is a ‘distributed denial of service,’ or ‘DDoS’ attack. In such an attack, hackers flood a website or service with requests until it becomes overloaded. As a result, real users are unable to access their services. Disruption or downtime for any application will have far-reaching negative efftects, including lost users and financial costs.
Instead, decentralized applications distribute essential components of their infrastructure across multiple nodes on the blockchain so their is not single point of failure. This makes it intrinsically harder, if not impossible, for hackers to bring down a service.
Which Common Factors Define Dapps?
The Dapp concept is much newer and much harder to define. In fact, there is no one accepted definition of a Dapp, but there are a few common characteristics that all Dapps have in common.
For one thing, all Dapp’s are open source, giving them a higher level of transparency than other, more centralized, applications. Dapp’s are also unique in that they do not have a central point of failure. This helps to make them more robust and more resistant to hacking and other online dangers.
There are three distinct types of Dapp’s out there. The first kind of Dapp is an app that manages money.
This first type of Dapp allows users to exchange Ethereum, or some other cryptocurrency, to settle a contract with another user. In this kind of transaction, the individual making the payment uses the network’s distributed computer nodes to distribute the data and make the payment.
The second type of Dapp is a Dapp in which money is involved, but another piece is required to make it work. This kind of DAPP combines money with data from outside the blockchain. To do this, they either need some centralized portion of their setup, or they will need to use a blockchain-based “Oracle” to connect to the outside world. An insurance agent, for instance, may use a Dapp that is dependent on external information, like accident data or rates of crop failure in a specific location. Money still changes hands, but the transaction is dependent on external information as well as the blockchain.
The third and final category of Dapp is known merely as the “other” category. That type of Dapp can include things like voting and governmental systems. Many people feel that the blockchain concept could eliminate voter fraud, hacking and other interference, making elections far more secure than they are today. This is an example of an “other” Dapp, one that could one day be used by governments and election boards around the world.
Then there is the decentralized autonomous organization or DAO. This is an especially ambitious use for the Dapp, one with the goal of creating a sort of leaderless organization. In a DAO, the rules governing how individual members can vote and how funds can be released are decided at the outset, and the decentralized application allows the organization to run in a largely autonomous manner. These decentralized autonomous organizations are still relatively rare, but they could become far more common in the future. Libertarians and small-government advocates are looking closely at the DAO concept, and others may join in as the concept becomes more popular.
Will all Apps Become Decentralized?
Although it’s likely to be a slow process, there are very few applications that wouldn’t stand to benefit from blockchain technology. Most Dapps would still feature a frontend user interface and experience similar to that of traditional centralized applications. Therefore, just as users currently download and use web and mobile applications without understanding the underlying technology, Dapps will likely begin to proliferate without users even knowing they are based on the blockchain.
The only real difference is that to interface with the blockchain; most Dapps would require users to have a wallet, which stores either their identity data or private keys. Therefore, before the mass adoption of Dapp’s can take place, integrated wallet technology will have to become sufficiently easy to navigate for the average user.
The world of cryptocurrency is known for its decentralized nature, and that decentralization is at the heart of how these unique payment systems work. The decentralization of Ethereum and other cryptocurrencies helps to create a secure, anonymous, and safe form of payment, something that has powerful implications for the future of business, government, and individuals.