Understanding Decentralized Applications: A Comprehensive Guide to dApp Technology & Functionality

Quick Links

• How Centralized Apps Work
• How dApps Work
• The Benefits of dApps
• The Downsides of dApps
• Who Pays for dApps?
• Examples of dApps

A decentralized app or dApp offers the benefits of centralized cloud-based apps like Google Docs, but without the need for cloud datacenters. Using the same blockchain technology like cryptocurrencies, ICOs, and NFTs, dApps offer unique security and privacy advantages.

How Centralized Apps Work

Most modern online apps you use every day, like Facebook, Twitter, or Google Docs , all have the same basic structure. There’s a “client” application on your device (or a web app running in your browser) and then there’s a server somewhere.

The processing work can be done mostly on the local client device or it can be offloaded to the data center, depending on the type of job. For example, voice recognition processing or AI image manipulation can be done remotely.

In either case, the local client apps sync your information and activities to a central system and everything you do is dependent on and visible to whoever runs that central system. This is one of the reasons we’ve seen the rise of end-to-end encryption , as a way to protect your private information from the platform provider.

How dApps Work

With dApps, there are still computers that do the same job a traditional server does, but those computers don’t all belong to the same person or company. Instead, the workload is spread across the computers of users and anyone else who makes their computer systems available.

In the case of peer-to-peer systems, every person who participates also contributes. With BitTorrent , you’re sharing data with other peers just as you are downloading data for your own use. BitTorrent isn’t really thought of as a dApp in the modern sense, although it is literally a decentralized app.

When the term “dApps” is used it usually refers to applications that rely on the computational power of the blockchain to work. Even more specifically, dApps are mostly found on the Ethereum blockchain.

Ethereum is a cryptocurrency much the same as Bitcoin, but it was designed to do much more. The Ethereum blockchain can execute complex instructions allowing for applications such as Smart Contracts and various other dApps that are only limited by the imaginations of developers.

For something to be a true dApp, it should comply with three principles:

• The dApp must be secured with a cryptographic token.
• Its data and records must be public.
• It must be open source and not be under the control of any single person or group.

Of course, no one is enforcing any of these rules and anyone can develop a dApp that has some but not all of these. So if you choose to use a dApp it’s up to you whether complying with these principles is important to you.

The Benefits of dApps

Why were dApps invented in the first place? The answer involves concerns about the control big tech companies have over our data and how vulnerable centralized systems are.

When your data is in one place, it means that if it goes down so does the service and so does the information. When a data center is hacked, all of the information is in one place. If a government decides to censor a service, they have one place to target.

dApps promise to mitigate or eliminate all of these issues. Because they have no center, the service can’t be shut down or corrupted. If a dApp is open source, there’s no way to hide back doors in the code.

Since dApps interact with the Ethereum blockchain to work, it also makes it easy to integrate cryptocurrency transactions into the app, making payments for services possible. Like Bitcoin, Ethereum is only pseudonymous , since there are ways to link the identity of a crypto-waller owner to that wallet.

So dApps still have the same limitations as transacting with a centralized app that supports cryptocurrency payments.

Decentralized apps can also make use of a so-called “sidechain”, which runs in parallel to the main blockchain, but has its own independent operation. The sidechain is connected to the main blockchain using a bridge and according to the official Ethereum sidechain document deploying dApps to a sidechain is virtually as easy (or hard) as deploying it to the main blockchain.

The Downsides of dApps

There are a few reasons dApps haven’t taken off yet and might never really attract mainstream success. Traditional apps are driven by a strong business model, companies who offer these apps develop them in a focused way with a strong emphasis on usability.

dApps tend to be community developed and lack the sort of usability resources that polished corporate apps have. On top of this, if the dApp doesn’t have many users to sustain it, the user experience can be slow. It’s a chicken and egg situation where you need critical user mass for the dApp to work well, but no one will use it until it does in fact work well.

Finally, because of the public nature of dApps, the open-source code, and the general principle of transparency, it provides hackers a unique opportunity to find and exploit vulnerabilities that would usually be obscure.

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Who Pays for dApps?

When you use a service like Google Docs or Microsoft 365, the cost of providing the service is paid either through advertising or a direct subscription fee from you, the user. While dApps aren’t under the control or ownership of a single entity, the computational power and storage still need to be paid for.

In the case of Ethereum, these transactions are paid for in the form of “gas “ fees, which can vary depending on the current demand for transaction verification. In most cases, you’d buy Ethereum and then use it to pay for the transactions on the blockchain the dApp needs to perform so that it can do its job.

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Manu dApps, as you might imagine, relate to cryptocurrencies and finance. That’s just the tip of the iceberg. If you visit State of the dApps , you’ll see dApp games, cloud storage services, and governance tools.

One of the most impressive (but now sadly discontinued) dApps was Graphite Docs , which offered a decentralized alternative to Google Docs, with strong data privacy. The source code for Graphite Docs is available for anyone to start their own version of the service, however, and we hope someone out there takes up the challenge one day.