Decentralized applications (DApps) are decentralized applications that run on blockchain networks and are based on smart contracts. Just like the long beard of apps on cell phones used everyday, DApps have evolved into different types and applications including gaming, finance, social media, etc. as related technologies and needs evolve.
DApps look similar to ordinary apps on cell phones on the front end, but actually have very different systems on the back end. dApps run relying on smart contracts on the blockchain network instead of centralized systems and servers, which makes it more transparent and decentralized, and more resilient to attacks.
What is Decentralized App
A decentralized application (DApp) is a smart contract-driven application running on blockchain. A DApp looks similar to a regular mobile app on a smartphone and is capable of providing various features and services such as gaming, finance, social media, etc.
DApps run on a decentralized peer-to-peer network rather than being deployed on a centralized server. dApps typically have the following characteristics:
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open source: The source code of DApp is open to the public, allowing anyone to verify, use, copy and modify it.
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Decentralized: To ensure data security, all information of a DApp is protected using cryptography and stored on a public decentralized blockchain maintained by multiple nodes.
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Tokenized system: Anyone can use DApp using the corresponding cryptocurrency. dApps can either use cryptocurrencies such as ethereum or generate their own native tokens through specific consensus algorithms such as Proof of Work (PoW) or Proof of Stake (PoS). At the same time, no single entity can control most of the tokens. Token-holding users can also suggest and vote on DApp updates.
Use Cases of Decentralized Applications
With the advancement and development of related technologies and the changing needs of users, DApps have given rise to different use cases in different industries. These include, but are not limited to
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Finance: decentralized crypto exchanges (DEX), peer-to-peer lending and trading platforms. With DApps, anyone can use financial services without an intermediary third-party newcomer and have full control over personal assets;
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Payments: without the involvement of intermediaries such as banks or payment processors, users can transfer money quickly and securely, thereby reducing fees and increasing the speed of transactions;
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Gaming: decentralized gaming platforms allow players to take full control of and trade items and currencies in games, and some game assets can be liquidated or put to use in other games;
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Identity management: personal information is encrypted and managed through DApps, instead of being stored on centralized servers, ensuring the security and privacy of online transactions;
Limitations of Decentralized Applications
Although blockchain technology and decentralized applications are currently developing very rapidly, in reality, decentralized applications are still in the early stages of development and suffer from a small user base and limited scalability.
To enhance user experience and ensure operational security, developers may need to constantly find vulnerabilities, modify code, update interfaces and upgrade new features. However, after a DApp is deployed on a blockchain, it is difficult to modify its back-end code. Any change requires a consensus of most network nodes, and this step can take a long time and cost a lot of money.
At the same time, running a large number of simultaneous DApps requires strong arithmetic support, which can overload the network on which they are running. For example, some DApps require each verifier to run and store every transaction executed on the network. This can reduce the transaction per second (TPS) speed of the system, leading to network congestion and higher gas fees.
Disclaimer
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Crypto investment involves significant risks. Please proceed with caution. The course shall not be considered investment or financial advice.
Next: Lesson 4 - Applications of Blockchain Technology: Finance and Banking