DApps, or Decentralized Applications, are a new category of blockchain applications which are transforming the way businesses operate. As the name suggests, DApps are decentralized, which means they are not controlled by any single authority. A DApp utilizes blockchain technology, and runs on a peer-to-peer network as opposed to a single network of computers. In a peer-to-peer network, information is continuously distributed between the participants instead of being stored on a central server. While a large network suffers from slower speed and performance compared to a centralized server, a higher number of participants strengthens a peer-to-peer network.
One of the first examples of a DApp was Bitcoin, which sparked a wave of innovation. Thousands of new DApps have been created since. Currently, the Ethereum blockchain is the most popular platform for building DApps, supporting almost 2000. Some of the most widely used Ethereum DApps include decentralized exchanges, applications for trading between individuals, and games. Ethereum’s ability to power smart contracts, for which the platform was specifically created, represents one of the most important uses of DApps. See some of the most popular Ethereum DApps.
DApps can have broad functionality that goes beyond the transfer of digital currency; they can transfer all types of digital data and can have a variety of use cases. These blockchain apps are much more powerful than traditional apps. Many current software programs and related services may become decentralized in the future due to the inherent flexibility, security, and transparency they offer.
For an application to be considered a DApp, it must be completely open-source, and operate autonomously with no single entity controlling the majority of its tokens. The application must be decentralized with the data and records stored on a public blockchain in order to prevent failure at any central point. Changes in the DApp are decided through the consensus of users. Lastly, the application must use a digital token to access the application, and validators (also called miners) on the network are incentivized by rewarding their processing activity with digital tokens.
Tokens can also distributed via fundraising, to those whose fund the initial development of a DApp. The Digital Currency Marketplace HBUS helps projects fundraise for the development of their apps by listing their tokens.
There are three different categories of DApps:
Type 1: DApps which have their own blockchain
Type 2: DApps which use “Type 1” DAPPs to function: these DApps are protocols and must have tokens to function.
Type 3: DApps which use the protocols of Type 2 DApps but are also protocols that issue and require tokens.
Ethereum is currently the most popular DApp platform, and a great example of a Type 1 DApp. Other popular platforms include NEO, EOS and Bitcoin. Many Bitcoin DApps are moving over to platforms such as Ethereum, due to the faster speeds and greater flexibility for different use cases. DApps built upon the Ethereum protocol are examples of Type 2 DApps. One example is the 0x protocol, which was built on the Ethereum blockchain to power decentralized exchanges. Type 3 DApps are built upon existing Type 2 Protocols. An example of a Type 3 DApp is the DDEX decentralized exchange, which operates on the 0x protocol.
A question one might ask is whether the development of new DApps could affect the price of Bitcoin or the price of Ethereum. The answer is unclear. On one hand, demand for cryptocurrencies increases price; on the other hand, pressure on networks can slow transaction times and hurt prices. For Bitcoin, because it has emerged as the leading peer-to-peer currency and has limited DApp capability compared to Ethereum, it unlikely to have enough DApps to affect transactional volume and therefore demand. Ethereum, however, which experienced a massive jump in value in 2017 because of its smart contract (a type of DApp) potential, future increases in the demand on the network may affect the price. It really depends on whether Ethereum can scale to meet the demand of future DApps.
The potential uses for these blockchain DApps are endless. They can solve many real-world issues in areas such as identity authentication, supply management, food delivery, music services, and a variety of other functions which will become more evident as the technology develops. All these industries can benefit from DApps by enhancing application security, integrating with cryptocurrency and being free of external intervention.
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