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A beginner’s guide to decentralised applications (dApps)

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Ever since the first blockchain network was launched in 2009, blockchain technology has continued to evolve. Over the years, new functions and features are being added on various blockchain platforms that go beyond the industry of finance. 

From collecting art to gaming and online markets, blockchain has built a whole new industry facet called decentralised applications, otherwise known as dApps. Read more about their real-world uses and examples below!

What are dApps?

Decentralised applications (dApps) are digital applications or platforms that run on a blockchain or a peer-to-peer (P2P) network. Meaning to say, there are no third-party authorities with complete jurisdiction over a certain platform. 

Users within the network have greater control over their data, eliminating the risk of control and interference from authority. In a nutshell, dApps are community-driven.

For instance, you can create a dApp similar to Facebook and run it on a blockchain platform. In this network, every user can publish their own posts. Once they are posted, no users—not even the developers nor the creators—can edit or delete them. 

How do dApps work?

To know how dApps work, you first need to understand their structure. These applications consist of a frontend code to communicate with the users and a backend code to prevent a single entity from tampering with it.

On the surface, the frontend code looks like any other mobile applications that you use every day such as Facebook, Instagram and WhatsApp. However, the difference is it has a digital wallet storing the private and public keys of users. The frontend code helps the blockchain manage the addresses and cryptographic keys for authentication, as well as make calls trigger the backend code.

The backend code, on the other hand, runs on a decentralised peer-to-peer network. They are written through a smart contract using the Solidity programming language. A smart contract is a computer program that carries out the logic behind a specific dApp. Once it is deployed within the platform, you’re not allowed to make changes anymore. 

Benefits of decentralised apps 

Despite being at the early stages of development, dApps have proven to be useful across industries such as gaming, financial services and social media. At this point, they have significant benefits everyone can take advantage of. Here are some of them:

Data security

One of the best features of decentralised apps is that they have unparalleled security. Since they run on blockchains, they virtually have zero risks of encountering problems most centralised networks experience. Moreover, blockchain-based platforms carry consensus mechanisms that prevent malicious attacks from happening. 

Unlike in centralised networks, dApp users are not required to provide any personal details. Moreover, any user information will be stored on a database that is not controlled by an authority in any way or form.

Low-cost development

With centralised apps such as YouTube, Pinterest or Twitter, the cost of development is high. They have to consider maintenance fees, cloud servers, data processing and marketing costs, among other things. 

However, in the case of decentralised apps, blockchain developers do not need to pay a fortune since dApp costs already include upgrade, deployment and development. Moreover, dApps is more financially efficient since there are no third-party entities to pay. Hence, developers can make more profit, as well as lighten the transaction fees for the users. 

User-centric content guidelines

Centralised applications follow the laws and regulations of the country where they operate. They also arbitrarily decide on the Terms & Conditions on what type of content to publish, resulting in harmful consequences for the users. For instance, YouTube was flagged for publishing video content containing hate speech. Similarly, TikTok allegedly censored and blocked transgenders from using the platform.

However, dApps are entirely different from regular applications. Since there is no middleman to control and exercise censorship, users have better autonomy. 

Users will not be blocked from accessing the blockchain, submitting transactions or deploying dApps. It will be up to you to choose what type of content you want to consume or share, given that you are responsible for the legal implications.

Examples of decentralised finance apps

Now that you have a good grasp of what decentralised applications are, there are plenty of examples of dApps that you need to know. 

Decentralised finance, also known as DeFi, is a system where financial applications and services run on blockchain technology. People are allowed to borrow funds from other users and trade cryptocurrencies in peer-to-peer transactions instead of going through banks. Today, there is a growing ecosystem of decentralised financial applications available for everyone to use. 

Here are some of the decentralised finance applications that you can benefit from:

Compound

Considered to be a blockchain-based borrowing and lending dApp, Compound allows its users to lend their cryptocurrencies and earn interest from them. 

Moreover, if you want to buy groceries but your funds are tied to your investments, you can deposit your digital assets to the Compound smart contract and borrow from it. The system will automatically match borrowers and lenders, as well as regulate interest rates.

Uniswap

Uniswap is a cryptocurrency exchange that runs on smart contracts, allowing you to trade tokens directly from your wallet. 

To ensure that the trades stay true to the market price, it uses a mechanism called Automated Market Making (AMM). It is the protocol that relies on a mathematical formula to price assets instead of the usual market-making techniques.

Aside from trading, the users can also participate in pooling. Meaning to say, you can be a liquidity provider when you supply crypto to the contract and earn a share of the exchange fees.

What’s next for decentralised applications?

Although dApps are continuously gaining traction over the years, they still need further developments and new functionalities to maximise their potential. However, despite the fact that the technology is yet to be harnessed, it holds the promise of reshaping how people spend their money, share content and communicate with each other. 

It is expected that new dApps will emerge in the market. In fact, according to the DappRadar 2019 Dapp Industry Review, decentralised finance apps contributed approximately 88% in the financial sector. 

Moreover, dApps are now developing their UI/UX to fast-track the mass adoption of blockchain technology. Uniswap, a decentralised finance protocol used for trading tokens, has launched an improved interface of their platform just this year. The added features such as concentrated liquidity and multiple fee tiers will encourage users from all walks of life to participate in a secure, advanced financial market.

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