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Exploring Decentralized Applications (dApps)

Since the launch of Bitcoin, blockchain protocols have constantly been developed and refined to unlock new functionalities and use cases. One of the most expansive and exciting sectors to come out of this drive for innovation has been decentralized applications (dApps). Built on the blockchain, dApps have been developed for a variety of use cases ranging from finance to gaming to web browsing and collecting art.

Read more about dApp use cases here.

DApps rely on blockchains, typically Ethereum, to process data through distributed networks and execute transactions with smart contracts. These smart contracts can be combined to create powerful software which can be applied across different industries. Just like developers build applications for mobile and desktop devices, dApp developers create applications to function on specific blockchain networks.

Web Apps vs. Decentralized Apps

Trello, Slack, and Twitter are just a couple examples of companies that offer web applications. The usability of traditional web applications depends on two elements: the front end and the back end. Web applications use software that lives on centralized web servers, not the local operating system of any given device. Devices and servers communicate via coding messages through the Hypertext Transfer Protocol (HTTP). For instance, when you open Twitter on your web browser, the feed on display (the front end) is drawn from data held on the company's web server (the back end).

While the internet streams huge amounts of data through massive, centralized servers, a blockchain represents hundreds or even thousands of machines that share the transactional burden over a distributed network. On the front end, decentralized apps and websites use the same technology to render a page on the internet. However, the major difference is on the back end, as dApps communicate with their respective blockchain networks typically through a wallet, which serves as a bridge to the blockchain ecosystem.

Wallets manage your blockchain address and the cryptographic keys necessary to identify and authenticate yourself. Instead of using the HTTP protocol to communicate with the blockchain, dApp wallets trigger smart contracts that interact with the blockchain and execute transactions. A dApp is in essence the front-end user interface (UI) that communicates with smart contracts that transact on the blockchain, at which point a distributed network of nodes that makes up the blockchain validates and confirms the dApp data.

While a well-designed decentralized application user experience (UX) may not seem so different from a web app, it differs from the latter in that it eschews servers, HTTP, and limits potential censorship.

Decentralized App Criteria

A dApp generally meets four main criteria:

• A dApp is typically entirely open source, with no entity owning the majority of associated coins or tokens. By way of its open-source nature, changes to the protocol must be decided via consensus of its users.
• A dApp's data must be stored on a decentralized blockchain.
• A dApp needs to generate digital assets that act as a proof of value.
• A dApp's assets are distributed to network participants as rewards.

Under this definition, many cryptocurrencies can be considered rudimentary versions of dApps, even without smart contract functionality and web interfaces. A blockchain itself can be classified as a dApp.

The Future of Decentralized Apps

Although Bitcoin can arguably be called the first dApp, Ethereum has since become the primary growth driver of the dApp ecosystem. This is largely because of its smart contracts, network effect, and user base. As the DeFi market continues to expand its use cases and adoption, dApps present an essential on-ramp to crypto for new audiences by deploying user interfaces that emulate conventional web applications while accessing the new capabilities of blockchain. In doing so, dApps are in many ways expanding the functionality of the internet through blockchain.

See you next week. Onward and Upward!

Team Gemini

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