In brief

Decentralized applications (DApps) are applications that run on blockchain networks. There are many DApps with different use cases, such as gaming, finance, social networks, etc.

While DApps may look similar to regular mobile apps on your phone, their back-end systems are different. DApps operate using smart contracts on a decentralized network, instead of a centralized system. It makes them more transparent, decentralized, and helps resist attacks, but also creates some new challenges.


Introduce

Since the birth of Bitcoin (BTC) over a decade ago, blockchains have evolved and opened up a host of new functions and use cases beyond monetary applications. One of the new directions is to build decentralized applications (DApps) - using blockchain technology to enhance many traditional fields and services.


What are decentralized applications (DApps)?

Decentralized applications (DApps) are digital applications or programs powered by smart contracts that run on blockchains, instead of centralized servers. They look similar to regular mobile apps on your smartphone and offer a variety of services and functions, from games to finance, social networks, and more.

As the name suggests, DApps run on decentralized peer-to-peer networks. An initial report has suggested that the DApp has the following features:

  • Open Source: DApp source codes are open and available to the public, meaning anyone can verify, use, copy, and modify them. No single entity controls the majority of the cryptocurrency or its tokens. Users can also propose and vote on changes to the DApp.

  • Decentralized and safer thanks to cryptography: To ensure data safety, all DApp information is cryptographically secured and stored on a public, decentralized, operated blockchain by multiple users (or nodes).

  • Encryption system: DApps can be accessed with a cryptographic token. These applications can use cryptocurrencies such as ETH or generate its native token using a consensus algorithm such as Proof of Work (PoW) or Proof of Stake (PoS). This token can also be used to reward contributors such as miners or staking participants.

Under this broad definition, the Bitcoin blockchain can be defined as a DApp - and arguably the first DApp ever. It is open source, with all data recorded directly on the decentralized blockchain, operates on cryptocurrency tokens, and uses a PoW consensus algorithm. The same applies to other blockchains that have the above features.

However, today the term “DApp” generally refers to all applications that have smart contract functionality and run on a blockchain network. The Bitcoin blockchain does not support smart contracts, so most people would not consider it a DApp.

As of June 2022, most DApps exist on the Ethereum network. It provides a powerful infrastructure for DApp developers to expand existing use cases. But as DApps have matured, developers have started building them on other blockchains, including BNB Smart Chain (BSC), Solana (SOL), Polygon (MATIC), Avalanche (AVAX), EOS, and more.


How do DApps work?

DApps are applications that operate thanks to smart contracts. The back-end of these applications runs on decentralized peer-to-peer networks. Smart contracts operate as a set of predetermined rules and are executed by computer code. When and if certain conditions are met, all network nodes will perform the tasks specified by the contract.

Once a smart contract is deployed on the blockchain, it is difficult to change the code or destroy it. Therefore, even if the team behind the DApp has disbanded, users can still access the DApp.


Benefits of DApps

Although the interface of DApps and traditional applications may look similar, DApps offer many more benefits than their centralized versions. Web applications store data on centralized servers. A compromised server can take down an application's entire network, making it temporarily or permanently unusable. Data on centralized systems can also be leaked or stolen, putting companies and individual users at risk.

In contrast, DApps are built on decentralized networks with no central authority. By having no single point of failure, DApps are less vulnerable to attacks, making it very difficult for bad actors to take over the network. P2P networks can also ensure DApps continue to operate with minimal downtime, even if individual computers or parts of the network fail.

The decentralized nature of DApps also means users can have more control over the information they share. No company controls users' personal data, they do not need to provide a real-world identity to interact with the DApp. Instead, they can use cryptocurrency wallets to connect to DApps and have complete control over the information they share.

Another benefit of DApps is that developers can easily integrate cryptocurrencies into their underlying functions by leveraging smart contracts. For example, DApps on Ethereum can use ETH as a means of payment without integrating third-party payment providers.


Limitations of DApps

DApps have the potential to be an important part of the censorship-free future, but every coin has two sides. Decentralized applications are still in the early stages of development, and the industry has yet to address limitations such as scalability, code modifiability, and low user base.

DApps require significant computing power to operate, which can overload the networks they run on. For example, to achieve the security, integrity, transparency, and trust that Ethereum desires, it requires every validator to run and store every transaction made on the network. This can impact the system's transactions per second (TPS) and lead to network congestion, causing gas fees to rise.

Making modifications to the DApp is also a challenge. To enhance user experience and security, DApps will likely need ongoing changes to fix bugs, update the user interface, and add new functionalities. However, once a DApp is deployed on the blockchain, it is difficult to modify its back-end. This will require majority consensus from the network's nodes to approve any changes or improvements. So it can take a lot of time to do.

The abundance of DApps on the market also makes it very difficult for a DApp to stand out and attract many users. For a DApp to operate effectively, it needs to achieve network effects - the more users the DApp has, the more efficient it is at providing services. A large number of users can also make the DApp more secure and protect it from hackers tampering with the open source code.


DApps provide a new approach for businesses across many industries to reach more users. Some popular DApp use cases include GameFi, decentralized finance (DeFi), entertainment, and governance.


GameFi

GameFi DApps are becoming increasingly popular, as evidenced by the rise of Axie Infinity, a play-to-earn game on the Ethereum blockchain. According to DappRadar, blockchain gaming activity in Q1 2022 increased by 2,000% compared to 2021. It also attracted 1.22 million unique active wallets (UAW) in March 2022, with more than 50% of the activity The impact comes from game DApps.

Unlike traditional video games, most gaming DApps give players full control over their in-game content. These DApps also provide players with the opportunity to earn money by selling in-game items externally. Take Axie Infinity, which features game characters, virtual lands, and gaming items as NFTs. You can store Axie in a crypto wallet, transfer to other Ethereum addresses, or trade with players on the exchange market built on the blockchain. In the gaming ecosystem, players can also compete with each other to collect ERC-20 tokens, which can be traded on exchanges. Usually, the longer they play, the more in-game rewards they can earn.


DeFi and DEX decentralized exchanges

Traditional finance is built on financial institutions that act as intermediaries. Through DApp, everyone can use financial services without any central authority and maintain full control over their assets. DeFi can also benefit low-income individuals, giving them access to a wide range of financial services at significantly lower costs.

Borrowing and lending are the most common types of financial services that decentralized applications provide. DeFi DApps offer instant transaction settlement, minimum to zero credit checks, and the ability to use digital assets as collateral. With DApp, users can have more flexibility in lending markets. For example, lenders have more control over their loans by choosing which tokens to lend and on which platforms. Users can also get 100% interest on the loan because they do not have to pay any intermediary fees.

Decentralized exchanges (DEXs) are another good example of financial DApps. Such platforms facilitate peer-to-peer trading by eliminating intermediaries such as centralized cryptocurrency exchanges. Users do not need to give up custodianship of their funds. Instead of transferring their assets to an exchange, they trade directly with other users with the help of smart contracts. Orders are executed on-chain and directly between user wallets. Because DEXs require less to operate, they often have lower trading fees than centralized exchanges. Some popular DEXs include Uniswap, SushiSwap, and PancakeSwap.


Entertainment

Entertainment is an indispensable part of our lives. With DApps, everyday activities that people enjoy are being transformed into digital experiences that can also create economic incentives. For example, Audius is a decentralized music streaming platform that operates on blockchain. This app eliminates the intermediaries that exist in the traditional music industry to directly connect artists and fans. It allows music producers to better monetize their content and create immutable records of music products on the blockchain.

DApps are also solving problems faced by users of social media platforms. Centralized social media giants like Twitter and Facebook are often criticized for censoring posts and mishandling user data. With decentralized social DApps like Steemit, the community can freely interact and express their opinions with fewer restrictions and censorship while having more control over their personal information.


Administration

DApps can empower users, helping them play a greater role in the governance of online organizations by providing more community-centric decision-making mechanisms. With the help of smart contracts, users who hold the governance tokens of a particular blockchain project can create proposals for the community to vote on and vote on other people's proposals anonymously.

One of the decentralized governance models is  Decentralized Autonomous Organizations (DAOs). DAOs can be viewed as completely autonomous DApps, using smart contracts to make decisions without the need for a central authority. DAO does not have a decentralized system. Instead, they are economic mechanisms that align the interests of the organization with the interests of each member of the DAO.


How to connect to DApps?

To interact with the DApp, you will first need a compatible browser extension wallet such as MetaMask, Trust Wallet, or Binance Chain Wallet. They only take a few minutes to set up. Some wallets even offer mobile versions for easy access.

Let's use Trust Wallet as an example to see how to connect it to PancakeSwap on BNB Smart Chain (BSC). If you don't have Trust Wallet yet, check out this Academy article to learn how to install it on your smartphone.


Deposit BNB to Trust Wallet

To use DApps on BSC, you will need some BNB to pay transaction fees. For example, you can withdraw BNB from your Binance Spot Wallet.

Go to your Trust Wallet and tap on [BNB Smart Chain]. Do not click [BNB Beacon Chain]. This option is for BNB BEP-2 on BNB Beacon Chain and cannot be used to pay trading fees on BSC.


Click [Receive] to see your BNB deposit address. Then, copy and paste this address into your withdrawal wallet or scan the QR code.


Once the transaction is confirmed on the blockchain, you will see the BNB number on your Trust Wallet homepage.


Add new tokens to Trust Wallet's list

Trust Wallet's default token list does not include tokens from DApps like PancakeSwap (CAKE). To make CAKE show up in your wallet, you first need to add it to the list.

Click [Add Tokens] and search for “PancakeSwap”. You will see CAKE on different blockchains. When we are using BSC, press to turn on/off the button next to [CAKE BEP-20].


You should now see CAKE listed in your Trust Wallet tokens.


The next step is to connect your Trust Wallet to PancakeSwap. You can connect through the built-in mobile browser on Trust Wallet or desktop.


Connect to PancakeSwap via Trust Wallet browser

1. Click [Broswer] from the Trust Wallet homepage and go to the PancakeSwap website.


2. You will be prompted to connect to your Trust Wallet. Click [Connect].


Connect to PancakeSwap via a desktop browser

1.Go to the PancakeSwap website and click [Connect Wallet].


2. Click on the [Trust Wallet] icon and you will see a QR code on the screen.


3. Open your Trust Wallet app and go to [Settings] - [WalletConnect].


4. Click [New Connection] and scan the QR code.


5. You will be prompted on the app to allow the connection. Click [Connect].



summary

DApps are expanding the functionalities of the Web by enhancing conventional applications with blockchain technology. Decentralized applications can bring more innovative use cases to the market in the future. As reported by DappRadar, DApps recorded nearly 2.4 million daily active users in Q1 2022 and user interest is expected to increase continuously. However, there are still many problems that DApp developers and blockchain networks have not yet resolved to bring DApp applications to mass popularity.