What is DApp? 5 use cases for DApps!
Decentralized applications (DApps) are blockchain-based applications popularized by the Ethereum network and based on smart contracts. They behave similarly to standard apps—users should not notice a difference—but offer more functionality in terms of feature set.
DApps are a novel way to connect personal finance. Traditional finance is often associated with lending, borrowing, saving and other similar things. Each of them is facilitated by a central institution such as a bank or other financial organization.
However, when it comes to the future of finance, many point to cryptocurrencies and blockchain as examples. In this case, how can a simple financial chore like a loan work in a decentralized state?
The evolution of DApps
Although Bitcoin (BTC) was the first blockchain network, the technology has advanced far beyond basic financial transactions. When Vitalik Buterin and his colleagues proposed Ethereum (ETH) in 2013, they had a larger goal in mind: a decentralized way of life.
Buterin envisions a blockchain-based internet where consumers control the internet rather than businesses. To do this, Ethereum will provide support for smart contracts, which are simply automated if-then statements. These contracts are immutable because the rules and constraints are baked into their coding. This means that any party can transact without the need for a middleman, eliminating the need for a centralized platform.
In 2014, a report defining DApps was released, entitled “General Theory of Decentralized Applications, Dapps”. It was written by a team of experts in the field, including David Johnston and Shawn Wilkinson.
DApp is defined in the study as an entity with the following characteristics:
- DApps must be open source and operate without third-party involvement. It must be user-controlled, as users can suggest and vote on changes, which are then automatically applied.
- All data should be stored on a blockchain that is open to the public. Decentralization is crucial because there will be no single point of attack.
- DApps must use cryptographic tokens to gain access and must compensate contributors in the tokens, such as miners and stakeholders.
- DApps (PoW) require a consensus technology to create tokens, such as Proof of Work (PoW) or Proof of Stake (PoS).
The report then divides DApps into three “categories” or “tiers” based on how users interact with them.
The first layer of DApps resides on their own blockchain. The most popular applications use this type of DApp, such as Bitcoin. For example, they require consensus methods and built-in regulations.
Second-layer DApps are typically developed on top of the first layer, leveraging the capabilities of the underlying blockchain. Tokens are used for interactions in these contracts, which are often called contracts. The second layer of DApps will be scaling solutions built on Ethereum. Transactions can be processed on the second layer before being submitted to the first layer, relieving some of the pressure on the main chain.
Finally, the third layer DApp is built on top of the second layer and usually contains the information required for the other two layers to interact. It can hold the application programming interfaces (APIs) and scripts required to run in tiers 1 and 2. For example, a third-layer protocol can host many second-layer DApps, thereby overall improving the user experience.
DApps can be defined as diverse applications supported by the core blockchain. Some may be developed on top of the first layer, but if they meet the above requirements, they are all called DApps.
Why use DApp?
Decentralization has several advantages over programs running on centralized networks. Unique smart contracts eliminate the need for third parties. Programs like Venmo let you send money to anyone, but transferring money to a bank account costs money. Additionally, transfer orders often take several days to arrive.
However, sending money using decentralized applications means paying no or very small fees. Users save fees and since decentralized transactions are actually fast, they also save time.
Of course, DApps do not operate on centralized servers. Since there are no physical devices to attack, decentralized platforms are immune to various attacks. Not only does this make the network more secure, but it also eliminates downtime. It is always possible to gain access to these plans.
DApps can be used in almost every industry, including gaming, medicine, government, and even file storage. Therefore, the use of DApps is almost the same as standard programs. While all the improvements to the backend are helpful to users, the actual experience should remain the same. This method of participating in the process is called Web 3.0, which also refers to the decentralization of information.
When the Internet first emerged, it was an area filled with information that anyone could access. Large companies eventually exploited or integrated it. While these companies provide it “for free,” the price is handing over our data, which they then sell for profit.
Companies have influence over this information because they know what customers like to buy, how much money they have, and who they know. This control also means they have the ability to revoke it. Entering Web 3.0, the use of DApps will not compromise privacy.
Instead, users can provide just the information they need, such as a medical check-up or a loan, and choose who can see it and for how long. Companies can also pay for this access, ensuring users benefit too. There are also trust issues. It’s hard to fully trust anyone when large organizations with ostensibly excellent security are leaking identities, emails, and passwords.
Disadvantages of DApps
While decentralized applications may usher in a future without companies, the industry is actively trying to solve some fundamental problems.
On the one hand, the lack of centralized authority can lead to delays in updates and platform modifications. After all, a party can update their app at any time. DApps, on the other hand, require majority approval from a proxy government—even for simple bug fixes. This could take weeks or even months as consumers weigh the pros and cons of any changes.
DApps also require a sizable user base to operate successfully. In order to participate, they need nodes, governance, and users. However, getting access to DApps in the early stages can be challenging, and many people don’t get the help they need.
In the future, accessing DApps may be as simple as downloading. Currently, users must download a DApp-compatible browser, transfer the required cryptocurrency to that wallet, and then participate from there. While technically competent users should have no issues, the vast majority of consumers will be at a loss as to where to start.
DApps from all over the world
DApps in the financial field may seem like a no-brainer, but they can truly achieve cross-industry innovation. Let’s take a high-level look at some of the advantages in banking, social media, gaming, and more.
finance
Both lenders and borrowers can use DApps to conduct business. Lenders get an interest rate based on the amount of money they save with the bank. The more a person saves, the more loans the bank can lend, and the more interest both parties earn. However, the role of a bank as a centralized organization is larger than lenders simply wishing to provide a place to hold cash.
Since there is no middleman to pay, lenders can earn 100% interest through the DApp. They also have more control over their loans while earning tokens from the platform they choose to lend to.
Borrowers have greater influence over the amount and timing of interest payments. In fact, some platforms allow borrowers to repay the interest over months or even years, provided they meet minimum repayment levels. Interest rates can also be discussed with the borrower to make a fair decision for all parties.
Ultimately, with smart contract technology, gains can potentially be realized instantly. No involvement of an attorney or other third party is required, which would lengthen the confirmation process and increase costs for both parties.
social media
Users will benefit greatly from social media DApps. First, no one is filtering posts, which means free speech. If any post becomes problematic, the community can vote to remove it.
Influencers can also make extra money. On traditional networks like Twitter, popular tweets generate the most revenue for the company. It earns advertising revenue from all website visitors, while the author earns nothing.
Social media DApps may include a built-in tipping system using tokens, where users can place ads and get paid in full without the company taking a cut.
gamble
Gaming has always been a fascinating use of DApps. Currently, games take dozens of hours to grow a character—and players may have paid real money—but as players continue to play, the characters stagnate and gradually decline.
In terms of value, DApps give a more attractive answer. Take the game “CryptoKitties” as an example. In this case, the player gets a tokenized item, a cat. Over time, the cat will mature and, if raised properly, increase in value. If there are potential buyers, users can sell the cat for any price they like.
Additionally, some cats may be able to mate with other cats, resulting in rarer and potentially more expensive animals. Players can trade or acquire cats and do whatever they want with these tokenized pets. Their time investment is now truly worth it. There isn’t much yet, but the concept was developed after hours of playtime. Full-time gaming could be our future.
Voting and governance
In most cases, voting is a painful process. It often involves various verification steps, some of which are inaccessible to citizens who do not have adequate housing or who suffer from other issues. Not to mention tampering and other illegal activities.
Due to the existence of smart contracts, voting DApps can allow anyone to access the program. Essentially, the community can vote on a set of recommendations. Then, for example, they might set a 24-hour time limit for people to “vote” with their tokens. This widens participation and allows anyone to vote anonymously.
Votes are immutable and cannot be tampered with because they are stored in the decentralized network. Additionally, smart contracts may reward voters with relevant tokens in exchange for their efforts, thus encouraging more people to vote than before.
Fundraising and Advertising
Many people use ad blockers when browsing the web. This is definitely a nuisance for companies looking to make money, but given how intrusive advertising is in many ways, it’s acceptable in some ways. This can be fixed through browser DApps.
Users earn cryptocurrency while browsing the web using the browser’s integrated ad and tracker blockers. Users can now choose to allow donations when they find authors and sites they want to support. This means the more time a person spends browsing, the more they pay the website over time. Users can even enable ads for these specific websites, which will benefit them more in the long run.
The emphasis here is on privacy. Users can control who can monitor them, retain personal information, and donate to platforms in need of funds. It’s a win-win situation for everyone.
