What Are dApps and What Can You Do With Them?

Blockchain DeFi Knowledge

Crypto APIs Team

Mar 11, 2022 • 7 min

DApps stands for decentralized applications, which are digital apps or software programs built and run on the blockchain. This means that their backend code runs on a decentralized peer-to-peer network (P2P) instead of centralized servers as standard web apps do.

The majority of dApps are built on the Ethereum blockchain using smart contracts and have a variety of purposes including finance, enterprise solutions, gaming, and collectibles.

Different Types of dApps

Using the above criteria, the blockchain itself can be defined as a dApp. But blockchains can host other dApps that have their own blockchain. A dApp that doesn’t have its own blockchain can also be built on top of a pre-existing blockchain.

Basically, dApps can be broken down into three different types.

Type I: Type I dApps have their own blockchain, for example, Bitcoin.

Type II: These are dApps built on top of the blockchain of a Type I dApp. They are protocols and have tokens necessary for function. For example, Omni Protocol is built on top of the Bitcoin blockchain.

Type III: This type uses the protocol of Type II dApps. Again, they are protocols with tokens. For example, SAFE Network uses the Omni Protocol.

To explain, let’s use familiar platforms as a dApp analogy:

Type I would be Windows Operating System.

Type II would be Word, which uses the WoS.

Type III would be the mail merge tool that uses Word.

Ethereum, Smart Contracts, and dApps

According to figures from State of the dApps, about 76% of all existing dApps are built on the Ethereum platform. This dApp-rich ecosystem is achieved via smart contracts that allow Ethereum to have more functionality than simply cryptocurrency.

Smart contracts are code that lives on the blockchain. It is based on an if/then logic that enforces rules and executes certain actions as defined within the contract. Smart contracts act as a sort of API allowing dApps to connect with the blockchain.

The Difference Between Web Apps and dApps

In terms of purpose and frontend design, dApps look pretty much the same as web apps, especially to the end-user. However, the differences in their architecture and operation are what give them completely different characteristics.

Web applications use software that is stored on centralized web servers. Devices communicate with those servers via HTTP code. For example, when you open Trello on your web browser, the display feed is drawn from data stored on the company's server.

DApps on the other hand, instead of using HTTP, communicate with the blockchain via smart contracts that interact with the distributed network of servers, also known as nodes, to confirm the dApp data and execute transactions.

Mixing Off-chain and On-chain

A purist decentralized app developer would have the entire dApp backend storage and frontend running completely on the blockchain. But currently, most dApps run the backend on-chain with smart contracts, and the frontend UI is hosted on traditional servers.

Since the frontend doesn’t include any functionality (other than rendering), it doesn’t contain any transactional data. The dApp’s operational backend will be on-chain meaning it can still be defined as being decentralized.

Benefits of dApps

If web apps and dApps look pretty much the same on the front end, then why would you go to the hassle of creating a dApp?

User-governance

Centralized apps are operated using servers provided by a controlling authority. They have the power to interfere or change app functions and censor users as they see fit.

DApps, being decentralized, operate on a P2P network where no single person or organization has full control or has the ability to block users from interacting with the dApp. The function of the dApp, its cryptographic algorithm used to show proof of value, and any required code changes must be agreed to by the consensus of its users.

Data Integrity

Thanks to the cryptographic protocols and consensus algorithms of the blockchain, data stored on it is immutable and indisputable. Transactions can’t be forged or manipulated once they have been accepted and added to the chain.

Transparency

DApps are built on the blockchain which is a distributed public ledger using smart contracts that execute predictable actions that can be analyzed but not tampered with.

To compare, with current banking systems we have to trust that financial institutions are safe from external attacks and that they will not misuse personal data or illegally access funds.

DApps using the blockchain create records that are open and transparent, eliminating the need for middlemen and for the need of “trust”.

No Single Source of Failure

If a web app central server goes down or is hacked, the web app stops working. Whereas with dApps, their data is distributed across hundreds and possibly thousands of participating nodes.

If one node is compromised, the complete ledger of data is still viable. This also makes it much harder for cyber attacks and hackers. To take down a blockchain, they would have to locate and attack every single node.

Improved Privacy

Standard apps collect and store huge amounts of personal data which not only causes security risks but raises privacy issues. It’s been widely reported about how “Big Tech” makes money from users’ personal data.

With dApps, developers download and use the program’s open-source code, ie. the smart contracts. Using these smart contracts in your application means end-users can complete transactions without sharing their personal information.

Instead of registering for accounts with user names and passwords, interaction with dApps is done through cryptographic key pairs. This allows users to prove their identity and remain anonymous at the same time.

Uses Cases of dApps

The blockchain ecosystem is in its infancy yet developing at an astronomical rate. As such, decentralized applications are already making waves in many markets.

DeFi

Decentralized Finance apps are revolutionizing the FinTech marketplace. Traditional finance systems working on a centralized ecosystem are controlled by intermediaries such as governments, banks, and brokerages.

DeFi apps, such as digital banks, are created on the decentralized blockchain and are accessible to anyone with an internet connection. Users can buy, borrow, lend or trade cryptocurrencies, earn interest on digital assets, and insure against risk without the middlemen.

Voting & Governance

The blockchain can provide organizations with a secure and transparent platform for voting. Its decentralized nature eliminates the possibility of duplicate votes, fraud, and internal or external interference. Using smart contracts, companies can also detail exactly who is able to vote and on what.

Enterprise Solutions

DApps are already being utilized in a number of industries, such as supply chain management, healthcare, and pharmaceuticals. With smart contracts, organizations can establish accountability and authenticity of data, while increasing reliability, traceability, service quality, and overall cost-effectiveness.

Gaming & Digital Collectibles

One of the very first games to be built on the blockchain was CryptoKitties; the collectible cats were so popular they clogged the Ethereum network. Since then, there have been a number of blockchain gaming companies jumping on the rocket-fuelled wagon. With the recent rise of NFT (non-fungible tokens) the dApp marketplace for collectibles shows no sign of slowing down.

Ready to Create Your Blockchain-enabled App?

Creating a dApp can be hugely rewarding for both developers and end-users. At Crypto APIs, we have developed a full product suite that makes interacting with the blockchain easy. Thanks to our SDK library and one-time integration you can develop your dApp without spending time and money on learning new programming languages or developing new infrastructure.

Contact Crypto APIs and enter the blockchain ecosystem today.

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