For a decade now, blockchain technology has been around us and at the very least each one of us is aware of the term. However, dApp a fairly new concept is taking center stage and has been getting a lot of media attention. So what are DApps or Decentralized Applications as it is termed?
Presently, Dapps is one of the most intriguing terms used around the blockchain space. A paradigm shift in the approach of modern software models that has the power of creating highly scalable and profit-making applications has made a way in our regular lives. Imagine a world where you’re working on a powerful machine that has a spare capacity being used to serve people or businesses across the globe, all the while making money for you. Well, that’s the new world of Dapps and with the implementation pace picking up, it’s fast approaching reality.
But if you’re a technological enthusiast, I’m sure you’ll be looking for more than just a definition to understand the world of Dapps. So before we comprehend Dapps and how they work let’s get to familiarize ourselves with its underlying technology – Blockchain.
Understanding Blockchain Technology:
Blockchain is simply put, a shared ledger of transactions recorded and organized in ‘blocks’ and available publicly to the users globally, eliminating the need of a third party to verify the authenticity of such transactions. These blocks are linked together by cryptographic validation. Neither a single entity can manage such records of ledger nor is it stored in a centralized location, making it a distributed ledger.
The digital storage is entirely tamper-proof and the block validation system enables new records of transactions being added to the ledger irreversibly and preserved forever. Such ledger is open for all to see and hence its transparency. Bitcoin the first cryptocurrency marked a revolution of the blockchain technology making us reassess our definition of Store of Value. While in its infancy it allowed us a sneak peek into the world of future, a world running on Decentralized Applications that are transparent, resilient, distributed and entirely incentivized, revamping the technological landscape. And thus, Dapps, an open-source software technology that leverage on the blockchain technology was born.
What are Dapps: The Concept
To start with, Dapp is a term coined by combining two separate words – Decentralized Applications. Dapps are tools, applications or programs that are run by many users on a decentralized network with the trustless protocol. Dapps are next-generation applications that are distributed in nature and not owned by a single entity. It cannot be shut down or have downtime. They are designed to avoid any single point of failure and typically have a token system in place to reward its users that pool their resources to provide computing power.
But before we understand Dapps any better, let’s discuss the idea of traditional web-based applications. Primarily, traditional applications have two elements – front end and back end, which communicate with each other through coding messages using the HTTP protocol. Now, every traditional application setup requires a centralized architecture, meaning a hosting service n which such applications are hosted. Having a centralized architecture means it is prone to a single point of failure in case of an external malicious attack. Moreover, a hacker only needs to interrupt a hosting service to take down an application/s making it more susceptible to attacks.
Now, coming to Dapps that work in a similar way with two elements – front end and back end, the primary difference lies in the back-end system that is laid on Ethereum protocol. While the communication between the front end and the back end remains the same and a user of an application won’t sight any material changes, using a Dapp laid on Ethereum blockchain makes it extremely difficult for anyone to take down the application being hosted. To start with, if a hacker is trying to bring down a Dapp, he needs to take down all the distributed hosting nodes simultaneously, that is practically impossible.
Unlike Facebook or Twitter or the likes of it, that has a strong entity backing its servers and protecting the data, these applications are prone to major changes and can be manipulated if the backing authority wishes to. Meaning the backend is controlled by an individual organization that could affect its front end, eventually affecting its users.
Now, coming to Dapp which is highly distributed in nature, to modify the backend, it will require participation from all the elements of the network to take over the control of any given application. While presently, where we put our data and other vital information in the hands of centralized applications that are controlled by a singular authority/organization, we risk our privacy beyond our control, while on the other hand, the Ethereum network that runs on a distributed, community-operated model allows securing our privacy without giving the control of ownership to a single authority.
Types of dApps:
As described below, Dapps can be classified based on the blockchain model they use:
As laid on the Ethereum whitepaper, let us understand the three broad classifications of Dapps:
Financial Blockchain Applications:
An application that allows users to manage their money and finance is categorized as a financial blockchain application. Bitcoin is a perfect example of a financial blockchain application which is a distributed consensus providing a decentralized system of monetization.
Now, as is the case with all the distributed models laid on the blockchain, there is no centralization and no single entity can control the entire network. Here, the users of the application are the sole owners of their money and are held responsible for managing their resources according to their needs. Bitcoin and all the Altcoins created so far are examples of this category.
Semi-Financial Blockchain Applications:
A mix of money and information that is present outside a blockchain network, forms the category of semi-financial blockchain applications. For instance, ICO or Initial Coin Offering which offers fundraising aspects involving the use of cryptocurrencies apply the technologies of ERC20 where investors are required to send funds to a smart contract using their existing holdings of Bitcoin or Ether. This smart contract in turn stores such receipt of funds and shares an equivalent value of a new cryptocurrency being formed at a later stage.
Fully Functioning Decentralized Applications:
Dapps of this category make use of all the distributed systems and decentralized features available within a blockchain. These applications do not necessarily need to be financial or informative in nature. For instance, a portal for online voting falls under the category of fully functioning decentralized applications. Countries such as Dubai have laid plans and set the pace to become the world’s first blockchain-run government.
Difference between dApps & Smart Contracts:
A primary difference between Dapps and Smart Contracts is Dapp is an application that is laid on blockchain and hosted on a website whereas a Smart Contract acts as a bridge to connect the Dapp with blockchain. As already discussed, decentralized applications have their backend code running on a whole decentralized P2P network. The smart contract is only a small part of the whole Dapp and it requires a combination of multiple smart contracts to put together an entire Decentralized Application.
Dapps are largely becoming self-sustaining resources as such applications provide their stakeholders to be incentivized while allowing the ability to invest in the Dapp development process. While the use of Dapps has already been implemented for multiple purposes including payment systems, cloud computing, data storage, and information sharing platforms, etc. the future development will soon bring revolutionary changes that will surpass the need for currently available traditional applications.
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