“dApp” is short for decentralised apps; that is, apps that are built on a blockchain network.
The word ‘decentralised’ suggests that no single entity is in control of the entire app or its data. This is why it’s so different from traditional apps. Instead of running on a central server, dApps are hosted by participating nodes in a peer-to-peer network; no central authority controls the data or its accessibility.
It’s almost like BitTorrent for apps.
Beyond a simple name change, the shift from traditional to decentralised applications (dApps) signals a new way of thinking about web services. The term dApp was coined in 2013 by Ethereum founder Vitalik Buterin to refer to an autonomous app built atop a blockchain, operating without any central controlling authority.
dApps are likely to drive services and functions in cryptocurrency, DeFi, and possibly the future metaverse. In this article, we explore the benefits and risks that dApps bring and three popular dApps that opportunistic crypto investors should know.
During the initial development of the blockchain and cryptocurrency, many dApps ran on the Ethereum blockchain. Since then, the scene has evolved, and developers now have more blockchains (like Polygon, Avalanche, Solana and more) to choose from.
What are the benefits of dApps?
- dApps are more secure because they don’t rely on a single server.
- dApps can be more scalable than traditional apps.
- dApps are open source, which means the code is accessible to anyone who wants to review it.
- dApps can make you feel safer, knowing your personal data isn’t stored in one central location.
- dapps allow you to support an open source community with your contributions.
The main benefit of dApps is that they remove the need for a centralised authority to control, access, and validate transactions, leading to improved transparency between sender and receiver.
As there is no intermediary party, users have more direct ownership of their data and can share it on their own terms.
Another benefit is that dApps are more secure than traditional apps, as the decentralised nature of blockchain networks makes them much harder to compromise or hack into.
What are the risks of using dApps?
1. Scams
dApps are relatively new, and most users do not understand how to detect frauds in this niche.
In general, avoid dApps that promise high returns if they are unable to explain how they can sustainably provide so.
2. Network Vulnerability
In a traditional app, the company is responsible for the safety of your data. In a dApp, everything is dependent on code. And unfortunately, hacks are not unusual in the cryptocurrency space.
3. False decentralisation
The biggest risk for dApps is centralisation. If a dominant company builds and controls a dApp that becomes widely adopted, it will gain a great deal of power over the network.
dApps rely on decentralisation and consensus algorithms to function. Therefore, anything that prevents nodes from communicating with one another will disrupt dApp performance.
Three popular dApps you should know
At the time of writing, there are over 1,500 active dApps with more than 3 million monthly users. The State of the dApps then ranked these by active users, transaction volume, developer activity, user recommendations and other such factors.
Following their ranking, here are the top 3 dApps (as of this writing):
- Tether
- OpenSea
- Decentraland
1. Tether
Tether is a top-ranking DeFi app that allows users to trade fiat currencies without the need for third-party approval or verification.
2. OpenSea
OpenSea is a peer-to-peer marketplace for crypto collectables; a platform where users can buy and sell NFTs. With the latest NFT craze, it’s little wonder that OpenSea made the list.
3. Decentraland
Decentraland is a virtual reality platform powered by Ethereum. There, users can create, experience, and monetise 3D content and applications.
Future of dApps
dApps offer unparalleled advantages over traditional apps and can be used to change the way we interact with smart devices over time. As blockchain technology advances and becomes more widely adopted, we will likely see an increase in dApp use cases and functions.
For instance, DeFi apps like Uniswap allow peer-to-peer trading that works on automated smart contracts. This is a big step forward for decentralised finance.
How to invest in the future of dApps?
Although most dApps remain as private startups, some have launched their own governance tokens. Token owners are then allowed to have a say in the direction of the dApp.
For example, you can invest in Decentraland via its token, $MANA, and wait for their prices to increase in the future.
Although it is almost impossible to judge whether or not a dApp will be successful in the future, remember to do your own research. This will help you avoid investing in dApp projects that may not do well and steer clear of scams like $SQUID.