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What Is a Decentralized Application (dapps)?

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Decentralized applications or dapps are typically built on Ethereum and aim to give users more control over their finances and data.

1) What Is a Decentralized Application?


Decentralized applications (also called "dapps") offer services similar to those offered by typical consumer applications, but use blockchain technology to give users greater control over their data, eliminating the need for centralized intermediaries to manage data, thus making the service "decentralized".

Digital applications are ubiquitous in today's world. Consumers use the apps for emailing, paying for parking, finding dates, and countless other use cases. In traditional ownership and control models, consumers often hand over personal data to the service provider. With a decentralized application, users theoretically have more control over their finances and personal data because they don't have to rely on someone else to store and secure the information. However, some experts doubt that it works in practice.
One of the main goals of the founders of Ethereum, the platform supporting the second-largest cryptocurrency in the world, is to facilitate the creation of such applications. There are many challenges to overcome to achieve this goal.

But there has been progressing. There are hundreds of applications on Ethereum today, from a Twitter replacement to a decentralized virtual reality game. Many are slow and difficult to use, but give a sense of the potential of decentralized applications in the long run. The developers hope that Ethereum 2.0, a long-awaited upgrade officially released on December 1, 2020, will address these issues in the coming years.


2) How does dapp work?


Built on Ethereum, Dapps uses blockchain technology under the hood to connect users directly. Blockchains are a way to connect a distributed system where each user has a copy of the records. With blockchains under the hood, users don't need to switch to a third party, which means they don't have to delegate control of their data to someone else.

By their very nature, central entities have power over data entering and leaving their networks. For example, financial institutions can block transactions from being sent and Twitter can remove tweets from its platform. Dapps put users back in control, making such actions difficult if not impossible.

There is no agreed-upon definition of a dapp as it is a relatively new concept. But the main features of a dapp include:

  • Open Source: The code is public and can be viewed, copied, and audited by anyone.
  • Decentralized: Dapps have no one in charge, so no central authority can prevent users from doing what they want in the app.
  • Blockchains: If there is no centralized entity, what holds the application together? Dapps use a basic blockchain (like Ethereum) to coordinate instead of a centralized entity.
  • Smart contracts: Decentralized applications use Ethereum smart contracts that automatically execute certain rules.
  • Global: The aim is that anyone in the world can publish or use these dapps.

3) What are dapps used for?


The Ethereum whitepaper, published in 2013 by Ethereum creator Vitalik Buterin, divides dapps into three main types:

Financial Applications

Financial applications are often referred to as Defi applications, short for "decentralized finance".The idea is to use stable coins, alternative coins aimed at stabilizing the prices of blockchains (especially Ethereum) and cryptocurrencies, to improve more complex financial applications such as loans, wills, and insurance.


Semi-financial applications

The second type of implementation is similar, but confuses money with a “heavy non-monetary side,” as Buterin puts it in the Ethereum whitepaper.
Buterin gives the example of Ethereum developers who set up "Rewards", which are rewards that can only be unlocked if someone completes a task. In Westerners, thugs who can catch a person or a criminal are rewarded. In this case, however, they are rewarded for far less dangerous tasks, such as solving a difficult math problem.
The magic here is that the smart contract can (in theory) tell whether the bounty hunter has provided a solution that works, but distribute the funds once that condition is met.
Another example is a crop insurance claim that is connected to an outdoor air supply. Suppose a farmer buys a derivative, which he pays automatically if a drought destroys his crops.
These smart contracts are based on so-called "seers" that relay up-to-date information to the outside world, such as how many centimeters of rain fell last season.


But the main caveat is that many developers are skeptical. Oracles can be used in a decentralized way. Users must trust that the data stream provides the correct data and does not manipulate the data for their own financial gain.

Other applications : (DAOs and beyond)

Ethereum is a flexible platform, so developers come up with other ideas that do not fit into the usual financial classifications.
An example is using this approach to build a censorship-resistant decentralized social network. Most mainstream social apps, like Twitter, censor certain posts, and some critics say these social apps have inconsistent standards for censored or "dropped" content.
With a decentralized application like Peepeth, once you send a message to the blockchain, it cannot be deleted, even by the company that created the platform. It will live on Ethereum forever.
Some have considered going even further with this idea of ​​decentralization. If Bitcoin can handle financial authorities, is it possible to do the same for businesses and other types of organizations?

Decentralized Autonomous Organizations (DAOs) are a particularly ambitious type of Dapp trying to answer "yes" to this question. The goal is to create a leaderless company by initially programming rules about how members can participate, vote, how company funds are released, and more. Once launched, the DAO will run under these rules indefinitely.


4) What challenges do dapps face?

Dapps are early, and experimental, and developers have yet to resolve several critical underlying network-related issues. First, running dapps can be very expensive as Ethereum becomes increasingly crowded with users. While traditional applications sometimes have issues with scale, these issues are exacerbated in a decentralized environment that is inherently unable to function without some level of collaboration and coordination among multiple stakeholders.


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