What is a Decentralized Application? A Beginner’s Guide

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Decentralized applications are commonly created on Ethereum. The main purpose of dapps (Decentralized Applications) is to give the users more control over their data and finances.

If we talk about decentralized applications, then they work in the same pattern of providing some typical services to the consumers. But the only difference between them is that dapps use blockchain technology to give users control over their data and minimize for them to be dependent on centralized intermediaries to manage their data. Hence, the service becomes decentralized.

At this point in time, people use digital apps for multiple tasks. Whether you want to send emails or pay for something online, apps are available through which you can perform these actions. But at such apps, the consumers usually hand over or supply their personal data to the firm giving the services. In the case of decentralized apps, the consumers generally get the authority to handle and store their personal information.

Ethereum is the world’s second-largest cryptocurrency. One primary aim of its founder is to make these kinds of apps easy to build. The fact is that he is finding a number of challenges to reach his objectives.

But on the contrary, there has been an improvement. At the moment, multiple dapps exist, but the limitation for users is that they are difficult to use and relatively slow. The developers are working for the enhancement of dapps to be fast and easy to use in the upcoming years.

Dapps are created on Ethereum and connect the users directly by utilizing blockchain technology. Blockchain technology is a method to tie together a distributed system, where a copy of records is with each user. Due to blockchain technology under the hood, users do not have to involve a third party, and it means the consumers do not have to provide their information to someone else.

Working of Decentralized Applications

When we talk about centralized apps, the central entities have the authority to perform multiple actions and control data flow. They have control over your data, and the central entities have the right to stop your data flow or cancel your transactions. If we take the example of Twitter, then it has the right or authority to remove the tweets from its platform. But in dapps, the users are in authority, and such actions from the central authority are difficult or nearly impossible to execute.

The idea and concept of dapps are entirely different. And the characteristics of dapps are following:

  • Open Source

The public can view, copy and audit the code.

  • Decentralized

As told earlier, the dapps are decentralized. They are not in charge of any central authority. Whatever action is performed is done by the user, and the user has no restriction by the central entity. Central authorities are those entities in charge of the platforms that individuals use to get the services.

  • Blockchain

Dapps have no central authority in control, so they use blockchain technology (Ethereum) to correspond rather than the central controlling authority.

  • Smart Contracts

Dapps or decentralized application utilizes Ethereum smart contracts that automatically implement certain rules and regulations.

  • Global

Decentralized applications are globally used, and anyone in any part of the world can use decentralized apps for multiple purposes. These apps do not have restrictions to be limited to a single place or location, and people have the authority to publish or use the dapps.

Vitalik Buterin was the one who published the white paper for Ethereum and divided it into three main types.

Financial Apps

By the name of the app, it can be understood that these apps were made to involve money. The financial apps are also called DeFi applications. The abbreviation DeFi is taken from ‘decentralized finance’.

The goal is to employ blockchains (particularly Ethereum) to improve more complicated financial applications like wills, lending, insurance, and stablecoins, which are alternative coins that try to keep cryptocurrency prices stable.

Semi-Financial Apps

The second sort of app is identical to the first, but it combines money with “a heavy non-monetary aspect,” as described by Buterin in the Ethereum white paper. These decentralized apps did involve money and included some outside pieces of information from the Ethereum blockchain.

Buterin gave the example of Ethereum developers’ instance to create “bounties,” which are rewards that can only be activated if a task is completed. Bounties are given out to outlaws who can catch a person or criminal in western movies. They are, however, rewarded in this case for significantly less dangerous activities, such as completing a challenging computer problem.

The smart contract can (in principle) tell if the bounty hunter has delivered a working solution and will only disburse payments if this requirement is met.

Another instance is a crop insurance system that is reliant on weather data from the outside. Let’s say a farmer purchases a derivative that pays out automatically if her crops are destroyed by drought.

These smart contracts depend on “oracles,” which provide real-time data about the outside world, such as how much rain fell last season.

However, many developers are doubtful that oracles can be employed in a decentralized fashion. Users must trust that the data feed is giving accurate information and is not manipulating the data for their personal financial gain.

Other Apps

These apps are those that the developers are looking to build for storage and online voting purposes. Because Ethereum is such a versatile platform, developers are coming up with new ideas that don’t match traditional financial categories.

This approach could be used, for example, to establish a decentralized social platform that is resilient to censorship. Most prominent social media platforms, including Twitter, filter some postings, and some critics believe that the rules for what content is blocked or “downranked” are uneven.

So, once you post a statement to the blockchain through a decentralized software like Peepeth, it can’t be deleted, not even by the firm that established the platform. It will exist in perpetuity on Ethereum.

Some people have looked into expanding the concept of decentralization further. Is it conceivable to do the same for enterprises and other types of organizations if Bitcoin can do away with banking authorities?

Moving forward, Decentralized Autonomous Organizations (DAOs) are a type of decentralized application that tries to respond “yes” to that question. The idea is to create a corporation without a leader by setting rules from the start regarding how members can join, vote, and release company funds, among other things. The DAO would function under these rules permanently once it was created.

Challenges Faced by DApps

Dapps are still in their early stages of development, and developers have yet to tackle numerous critical issues with the underlying network that are holding them back. For one thing, as Ethereum’s user base grows, dapps can become prohibitively expensive to maintain.

Although traditional apps have scaling challenges, those issues are amplified in a decentralized environment, which cannot work without some kind of coordination and cooperation among various stakeholders by its very nature.

How are Decentralized Apps Created?

Numerous low-level coding tools, such as the smart contract builder Truffle and Web3, a manner to connect with Ethereum using the widely used programming language Javascript, have been created by Ethereum developers so that developers from all over the globe can run tests with dapps in the hopes of making the dream a reality.

Conclusion

The article states nearly everything that is related to decentralized apps. Since the technological advancements took place, the consumer base for online platforms has increased. Individuals started taking advantage of these platforms to perform their everyday tasks. No matter if you want to order food or want some to pick you up. It doesn’t matter if you are not in a bank and want to deposit money in someone’s else account. Everything can be done online.

Online apps are generally authorized by a central entity. The central entities of multiple platforms have control over the flow of information of the users. If the central authorities find something unusual, they can block your processes right on the spot.

If we take the example of a very well-known social media platform Twitter, then this app does have a central authority that runs it. You might have heard that someone’s tweet was taken down due to some reason. No matter who you are, your data is controlled and known by the central authorities. They are aware of all your activities and actions you perform on their platform.

Not even Twitter, even if we take the example of Facebook or Instagram (the biggest and most used social media platforms around the globe), the data there is also controlled. There are multiple cases where the authorities took down a post or action just because it was against their policies. In centralized apps, the user is restricted to perform the actions on their own. Even on banking apps, your transaction may get stopped due to a number of factors.

You may have heard the word ‘decentralized currencies, ‘ which are mostly referred to as cryptocurrencies. These currencies are called decentralized because these currencies are not owned, controlled, or supervised by anyone. Usually, fiat currencies, such as dollars and euros, are under the supervision of the government. Here the government is the central authority because it is in charge of the flow of currency in the specific country. But in crypt assets, the situation is entirely different. They are not in control of any single authority. Those currencies have no one in charge that has the authority to control the flow of this asset.

The individuals who have the crypt assets are the masters of their money. The existence of such currencies in the first place was there to minimize the involvement of the third party in money transaction processes. Likely, decentralized apps are used to perform multiple processes.  Dapps are completely independent, and there is not a single authority that rules them.

In such apps, the user has the control of information part. No one can remove your published post or message from dapps. It is you who has complete authority over the information you have. People usually give the information to the apps just because they need the apps’ services. They do not realize that the apps they choose can access their information in multiple ways.

Whether you are a social media website user or a trader in a centralized platform, your information and your money are with some other authority. You are responsible for providing them with the information which isn’t even required.

Then later in the article, we discussed that there are multiple characteristics of decentralized apps.

At first, we discussed that these apps are open source. Open source applications’ coding are available to the public. Individuals have the right to change it, audit it, and copy it according to their needs.

Secondly, we studied that the dapps are decentralized. It means that the control and the flow of information are only with the user. No central authority has the right to remove or stop the data which the consumer or user is executing.

At third, we discussed that dapps uses blockchain such as Ethereum. These blockchains hold up the app together, and coordination is done through the Ethereum blockchain instead of involving the central entity.

We discussed the smart contracts by Ethereum. These smart contracts automatically implement certain rules and regulations.

We learned that the dapps aims to be global. By globally available, it means that anyone from any part of the world should be able to publish the information or use the dapps.

After the discussion of the characteristics of dapps, it was discussed that the creator of Ethereum, when published the Ethereum white paper, published the classification for dapps. He classified dapps into three dominant types, including Financial apps, Semi-financial apps, and other apps.

When discussing the financial apps, it was found out that these types of apps were used whenever the money factor was involved. It was discussed that DeFi apps are another name for financial apps, and the acronym DeFi stands for ‘decentralized finance.’

The idea is to use blockchains (namely Ethereum) to improve more complex financial applications such as wills, financing, insurance, and stablecoins, which are alternative coins that attempt to keep cryptocurrency prices stable.

After that, Semi financial apps were discussed. In semi financial apps, the money involved was present, but some outside piece of data is required. It was studied that this type of app is similar to the financial app, but it combines money with “a heavy non-monetary feature,” according to Buterin’s description in the Ethereum white paper.

Buterin cited the example of Ethereum developers generating “bounties,” which are rewards that may be activated only when a task is performed.

In western movies, outlaws who can catch a person or criminal are rewarded with a bounty. They are, however, rewarded for substantially less harmful activities in this scenario, such as solving a difficult computer issue.

The smart contract can tell if the bounty hunter has given a working solution (in theory) and will only make payments if this condition is met.

Then we discussed other apps. The description of that is Decentralized Autonomous Organizations (DAOs) are a sort of decentralized application that aims to answer “yes” to that question in the future. The goal is to create a corporation without a leader by establishing regulations from the outset, such as how members can join, vote, and release company funds. Once founded, the DAO would operate following these rules indefinitely.

Along with the following point, it was discussed that decentralized applications face multiple challenges. It is because it is so much complex to even design or build this software. Moreover, in such applications, no central authority controls the flow of information along with the platform. We also learned that decentralized apps are still in the initial phases of development, and developers have yet to address a number of crucial network concerns that are preventing them from progressing. For one thing, as Ethereum’s user base expands, maintaining dapps may become prohibitively expensive.

Traditional apps face scalability concerns, but those issues are exacerbated in a decentralized context, which by its very nature requires coordination and cooperation among multiple players.

After all the discussion about the decentralized applications, we covered almost everything except for its making process. The Ethereum developers have created a number of low-level coding tools, such as the Truffle smart contract builder and Web3, a way to connect to Ethereum using the widely used programming language Javascript, so that developers from all over the world can test dapps in the hopes of making the dream a reality.

This was all about the decentralized applications. You may have gathered tons of information related to this kind of application. In the end, it can be said that after reading this guide article, you should know the workings of dapps. Along with it, you have covered multiple other aspects related to it that will help you anyhow to learn this critical subject.


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