What are dApps and why do we need them?

TL;DR

A decentralized app (dApp) is an application that runs on a blockchain. Instead of connecting to a server, dApps make use of smart contract technology to connect and interact with on-chain data and facilitate peer-to-peer (P2P) transactions among users without the need for third party intermediaries.

DApps function like any other application that you would have on your laptop or smartphone. But underneath the user interface, dApps operate differently. While regular applications either run on a single computer or connect to a server, dApps connect instead to a blockchain to distribute the workload to a global network of computers.

Applications like Facebook, Twitter, Google, and Amazon are all run by single entities or companies that store user data in large data centers.  In contrast, dApps are built on a decentralized blockchain network that is not owned by a single entity or organization, but is instead maintained and operated by all of its network participants. 

DApps are also self-sustaining because they are able to launch their own cryptocurrencies to build an in-app economy, facilitate the app’s utilities, and provide a governance system for its own community. This means that the application itself is able to keep on running with minimum supervision, funding, and intervention from its developers. 

But why is there a need to decentralize data in the first place? The following are other advantages that blockchain technology adds to our applications:

Data is kept more secure - For an app like Facebook, signing up for an account means you are willingly providing the app with personal data about yourself and your activities on the platform. This is data that can be accessed and used by Facebook however they see fit such as selling them to advertisers.  

Data on dApps on the other hand, are secured and encrypted by algorithms which are enforced by all the network members providing the computing power for the blockchain. And since no one person or entity has complete control over the app, users retain ownership of their personal data.

DApps are open-source - With dApps, developers often choose to keep the entire code open-source. This means that anyone can modify or improve upon the code programming. Though this might seem counterintuitive at first, open-source programming is arguably more secure than closed programming since the code is kept constantly scrutinized and guarded by the entire global network. 

In contrast to regular applications that rely on a small team of developers who may not have the best interests of the community in mind, an open-sourced protocol responds faster to bugs and other vulnerabilities. 

DApps can be faster and cheaper - With the advent of high performance blockchains that are capable of tens of thousands of transactions per second , processing transactions on dApps can be faster and cheaper than conventional apps. Payment and remittance dApps for example, are able to charge a tiny fraction of the cost of sending money compared to their conventional counterparts. 

DApps have no single point of failure - Since dApps aren’t reliant on the hardware of a single organization, it is extremely unlikely for the whole system to be compromised all at once. Hackers have a better chance of bringing down an application with a centralized server since they only have to focus on one target to take control of the network. In contrast, the maintenance for a dApp is shared among tens of thousands of different nodes around the world. If one particular node happens to fail or malfunction, there will be no shortage of other nodes to compensate and pick up the slack in order to maintain the app’s functionality.

Regular applications are paid for either by one-time fees, subscription fees or advertising which comprise the revenue earned by the company behind it. DApps on the other hand, are paid for by the transaction fees or “gas fees” which are distributed to all the node operators in the network.

To illustrate, let’s take one of the most popular dApps to date–Axie Infinity, which is a play-to-earn app built on the Ethereum blockchain. In the game, players collect NFT monsters called “Axies” and pit them in battles against one another to win Smooth Love Potion (SLP) tokens. With enough SLP, players can then “breed” more powerful Axies (which is basically minting new NFT tokens) which they can later sell to other players for Ether (ETH). 

But every time players buy, breed, or sell Axies, a portion of the transaction is used to pay for the processing fees. These gas fees are used to pay the miners from all around the world who are lending their hardware to keep the Ethereum network running, as well all the dApps on it including Axie Infinity. Tying all these processes together are the smart contracts which allow all these peer-to-peer transactions (P2P) to be executed automatically even without the developers and the gaming company looking. 

Axie Infinity itself doesn’t have its own blockchain for its back-end processing, but merely provides users with a gaming interface that they can interact with. Axie Infinity even has another token called Axie Infinity Shards (AXS) which are used to facilitate community governance, allowing holders of the token to vote on the dApps’s future directions and updates. 

DApp development in the Philippines is still very much in its infancy, though thanks to Axie Infinity, Filipinos are no longer strangers to the concept of a blockchain-based application. Blockchain startups have recently started to emerge with the likes of MergeCommit, Bloom Solutions, Tagcash, Qwikwire, Coins.ph, Appsolutely, and Salarium–just some of the local fintech companies who are already poised to utilize blockchain technology in developing the next generation of applications that we might soon be using on our laptops and our mobile phones. 

It’s clear how dApps can offer advantages such as peer-to-peer networking and play-to-earn capabilities which would not be possible on regular applications, and with the internet on the verge of shifting to Web 3.0, dApps will only become more and more ubiquitous and be used on more and more aspects of our daily lives. 

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DISCLAIMER: The statements in this article do not constitute financial advice. PDAX does not guarantee the technical and financial integrity of the digital asset and its ecosystem. Any and all trading involving the digital asset is subject to the user’s risk and discretion and must be done after adequate and in-depth research and analysis.