What Are Decentralized Applications (DApps) And How Do They Work?

The contemporary world is shifting its momentum towards decentralized finance. More people are coming to decentralized financial services, and there is a trend of deviating from the traditional centralized finance system. Enhanced privacy and security provisions in decentralized finance are the main reasons for this shift from traditional finance. Decentralized applications(DApps) are a significant term in decentralized finance.

They have entirely different functionality than traditional online applications. They are one of the major Web 3 services that enable enhanced peer-to-peer interaction. This article aims to provide comprehensive information about decentralized applications and how they work. 

What is a Decentralized Application(DApp)?

Decentralized applications are Web 3 software or applications that work on the blockchain or peer-to-peer computer networks. The users control these applications rather than algorithms or a regulating authority. The rules and regulations of the DApps are enforced by the blockchain-maintained network. Decentralized applications are usually free, but sometimes, users need to make a payment to download and use the source code. 

Decentralized applications use the latest technology called smart contracts to automate their processes, these processes involve core services of a particular DApp and the governance functions. To get this idea easily, we can use the example of Aave, one of the most prominent decentralized platforms. Aave uses smart contract technology to initiate and automate processes like staking, borrowing, and lending.

Other key features of DApps

• Cryptocurrencies are the means of exchange in decentralized applications. Users can access different services from decentralized applications by paying the crypto coins.
• Users will be able to get tokens that can represent the ownership of that respective decentralized application. DApps will distribute the tokens through fundraising, mining, and DApp development. Simply, it is a token that represents digital assets.
• Atomic Swaps are another key feature of decentralized applications. It is a peer-to-peer service designed to make cryptocurrency exchanges in different blockchains without the intervention of a third party.

How Decentralized Applications(DApps) work?

Understanding the decentralized application could be a difficult task for people who have only a vague idea about how the decentralized services look like. Decentralized applications are just like traditional applications, but exclusively designed to perform in blockchain systems and decentralized tasks. The basic underlying technology in decentralized applications is smart contracts technology. Smart contracts can be defined like this, it is a set of pre-determined or pre-designed regulations administered by computer code. Each smart contract in the decentralized application is destined to perform certain tasks. In simple terms, decentralized applications are smart contracts-powered services. 

Decentralized applications are generally free of cost, but they can change according to some instances. The cost can be varied according to the activity of the users. The source code of the application is available for anyone to access and users can contribute to it. Open source is the transparency-ensuring factor in decentralized applications. A collaborative effort in the community can be assured by implementing open-source techniques. 

All the data in the decentralized applications are protected by cryptography. The Implementation of cryptography techniques in decentralized applications can protect sensitive data and prevent it from reaching the wrong hands. All the financial data, user identities, transaction details, and history will remain classified and confidential when cryptography is applied in the DApps.

Major Decentralized Applications

Pancake Swap

It is a part of the Binance smart chain which is designed to offer and be a platform for swapping the BEP-20 tokens. This DApp is compatible with almost every crypto wallet. 

Uniswap

It is a DApp that provides vast liquidity and a wide range of token swaps or exchanges. It is a user-friendly application with a wide range of acceptance of crypto wallets. The fee structure of Uniswap is another factor in the wide popularity of Uniswap. It is much more transparent than the existing ones.

Opensea

Opensea is a digital marketplace where digital art is displayed and enjoyed at its finest level. It has become a center point for art enthusiasts and collectors.

Metamask

It is a DApp that helps people interact with other decentralized applications across countless networks. It can act as an important portal for users to access the decentralized applications that are based on the Ethereum network. Users can manage their assets, and initiate the transactions from their browser itself. 

Benefits of Decentralized Applications

DApps can simplify the complexities of traditional centralized financial applications. This is why decentralized applications’ significance and user count is increasing each day. So let us take a look at what are the major advantages of Decentralized applications.

Reduced cost and increased efficiency

Decentralized applications are free of cost since it is on decentralized networks. The intermediate agents are absent in this system, so this can reduce the cost of transactions to an extent. Decentralized applications are way more efficient than the current centralized services. The lack of intermediary agents is itself the reason for this. The transactions become simple when there are fewer parties involved in it.

Enhanced security

The presence of cryptography technologies is the prime factor in enhancing the digital security of sensitive data. Storage of sensitive data in the blockchain applications will be more secure since the data is not stored in the traditional centralized servers.

Global accessibility

Anyone who is connected to a stable internet connection can access the services of decentralized applications. The geographical barriers in the centralized systems will be eradicated in this technology. People will not have to depend on an intermediate third party to acquire the services.

Transparency 

Transparency in the decentralized applications is still the top priority of the users who wish to depend on DApps. Decentralized applications keep the data securely and give provision for the users to check and verify it. Users can verify the data by themselves without depending on a centralized authority. This transparency can create a trustful and secure environment. 

Disadvantages of Decentralized applications

Decentralized applications have so many benefits and advantages, but we cannot neglect the disadvantages and incapabilities of it. Let us take a look at the major cons of Decentralized applications.

Scalability issues

It is one of the most challenging issues in the global implementation of DApps. The transactions per second will be limited. This factor can create a hard time to scale DApps. Ethereum, one of the most renowned networks can only process 30 transactions per second. So it can be a big enough issue.

User experience

Users of decentralized applications may face a hard time in their software experience. The individuals may not have the proper awareness of the technology and technical terms. So it can compromise the user experience. A user-friendly interface for a decentralized application is unlikely.

Regulatory concerns

Decentralized applications’ regulation will be difficult since it does not have an intermediatory regulating agency to validate the transactions. The centralized applications are controlled and regulated by government authorities which is absent in the decentralized applications. The government is experimenting the regulatory measurements to address blockchain technology and DApps.

Slow transaction processing

Decentralized applications will be comparatively slower than the centralized applications. The use of consensus procedures is the factor that reduces the transaction speed of decentralized applications. 

Practical use of Decentralized applications 

People can use and implement decentralized applications in our real-life applications. These DApps can lessen the complexities of our day-to-day applications of life. Here are the major practical applications of Decentralized applications in our lives.

Financial management

Decentralized applications can facilitate peer-to-peer transactions without a centralized agency or authority. Using these decentralized applications in the financial sectors will reduce the complexities associated with traditional banking and online systems.

Healthcare 

Managing the healthcare data in decentralized applications can ensure transparency of the system. In the traditional data management system, some of the medical data is inaccessible to the patients, so making it recorded on the decentralized application can give access to patients to track their medical data.

Education 

Education is one of the wide areas that can sumptuously exploit the services of decentralized applications. Implementing this system in education can ease the interaction between students and teachers. Besides that, the collaborative learning environment will be the result of successful implementation.

Supply chain management

Using decentralized applications in the supply chain management system can lead to an improved and transparent management system. Users can easily track the movements of goods via DApps services. A decentralized supply chain can be prepared using DApps.

The Bottom Line

Decentralized finance and its applications have shown an unprecedented growth in the recent years. People’s attention is shifting towards a decentralized nature. Decentralized applications are digital programs or applications that work on a decentralized network.

DApps are exclusively designed to enhance the privacy and security of the transaction which could be a lack in the traditional centralized finance. The absence of third parties or intermediary parties is another main attraction of the decentralized applications. 

In this article, we focused on the decentralized applications and how it works. Readers are welcome to consider this as a comprehensive guide for understanding the concept and working method of decentralized finance.