TL;DR (SUMMARY)

Decentralized Applications (DApps) are applications that run on blockchain networks. There is a wide variety of DApps with different use cases, such as video games, finance, social networks, entertainment and more.

Although DApps may look the same as regular mobile apps on your phone, their backend system is different. Instead of using a centralized system to function, DApps rely on smart contracts on a distributed network. This makes them more transparent, decentralized and resistant to attacks, but also presents new challenges.


Introduction

Since the birth of Bitcoin (BTC) more than a decade ago, blockchains have evolved and generated a variety of new functionalities and use cases beyond cryptocurrencies. One of these new features was to build Decentralized Applications (DApps) to use blockchain technology to improve many sectors and services.


What are Decentralized Applications (DApps)?

DApps are digital applications or programs developed using smart contracts that run on blockchains instead of on centralized servers. They look similar to regular mobile apps on your phone and offer a wide variety of services and features ranging from gaming to finance, social media, and more.

As the name suggests, DApps run on decentralized peer-to-peer networks. One of the first reports suggested that DApps have the following characteristics:

  • Open Source: The open source of DApps is available to the public, which means that anyone can verify, use, copy and modify these codes. There is no single entity that controls most of the coins and tokens. Users can also propose and vote on changes to a DApp.

  • Decentralization and cryptographic security: to guarantee data security, all information from a DApp is cryptographically protected and stored on a public and decentralized blockchain, which is preserved by several users (or nodes).

  • Tokenized system: DApps can be accessed with a cryptographic token. These can adopt cryptocurrencies such as ETH or generate a native token using a consensus algorithm, such as Proof-of-Work (PoW) or Proof of Stake (PoS). The token can also be used to reward contributors such as miners and stakers.

Under this broad definition, the Bitcoin blockchain can be described as a DApp and possibly the first DApp in history. It is open source, includes all its live data on its decentralized blockchain, is based on a cryptographic token and uses the PoW consensus algorithm. The same goes for other blockchains that have these same characteristics.

Today, the term “DApps” generally refers to all applications with smart contract functionalities that run on blockchain networks. The Bitcoin blockchain does not support smart contracts, so most would not consider it a DApp.

As of June 2022, the majority of DApps exist on the Ethereum network, which offers a robust infrastructure for DApp developers to expand existing use cases. But as DApps mature, developers have also started building them on other blockchains, such as BNB Smart Chain (BSC), Solana (SOL), Polygon (MATIC), Avalanche (AVAX), EOS, etc.


How do DApps work?

DApps are applications developed using smart contracts. Its backend code runs on distributed peer-to-peer networks. A smart contract works as a predefined set of rules applied through computer code. When certain conditions are met (if applicable), all network nodes will execute the tasks indicated in 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 disappears, users will still be able to access the DApp.


Benefits of DApps

Although the interfaces of DApps and traditional applications may seem similar, DApps offer many benefits compared to their centralized counterparts. Web applications store data on centralized servers. A single compromised server can take down the entire application network and render it temporarily or permanently unusable. Centralized systems can also suffer data leaks or theft, putting companies and individual users at risk.

DApps, on the other hand, are built on distributed networks without a central authority. Without a single point of failure, DApps are less vulnerable to attacks, making it more difficult for malicious parties to try to take over the network. P2P networking can also ensure that a DApp continues to function with minimal downtime, even if individual computers or parts of the network are not working properly.

The decentralized nature of DApps also means that users can have greater control over the information they share. Without companies controlling users' personal data, they do not need to provide their real-world identity to interact with a DApp. Instead, they can use a crypto wallet to connect to a DApp and completely control the information they share.

Another benefit of DApps is that developers can easily integrate cryptocurrencies into their core functions using smart contracts. For example, Ethereum DApps can adopt ETH payments without integrating third-party payment providers.


Limitations of DApps

DApps have great potential to become an important part of a censorship-free future, but there are always two sides of the same coin. Decentralized Applications are still in the early stages of their development, and the industry has yet to resolve limitations such as scalability, code modifications, and a small user base.

DApps require significant computing power to operate, which overloads the networks they run on. For example, to achieve the security, integrity, transparency, and reliability that Ethereum aspires to have, each validator is required to execute and store every transaction executed on the network. This could affect the system's transaction per second (TPS) rate, as well as generate network congestion and an increase in the gas commission.

Making modifications to a DApp is also a challenge. To improve user experience and security, a DApp will likely need continuous changes to fix bugs, update the user interface, and add new features. However, once it is deployed on the blockchain, it is difficult to modify the backend code. A majority consensus of the network nodes would be needed to approve any changes or improvements, which would take a long time.

The abundance of DApps on the market makes it difficult for one to stand out and attract many users. For a DApp to work effectively, it must achieve a network effect: the more users it has, the more effective it is at providing services. A large number of users can also improve the security of the DApp and protect it from hackers who try to affect the open source.


DApps offer a novel approach for companies in various sectors to reach more users. Some popular DApp use cases include GameFi, Decentralized Finance (DeFi), entertainment, and governance.


GameFi

GameFi DApps have been increasing in popularity. An example is the rise of Axie Infinity, a play-to-earn game on the Ethereum network. According to DappRadar, gaming activity on blockchain increased 2,000% from 2021 to 2022. It also attracted 1.22 million unique active wallets (UAWs) in March 2022, with more than 50% of activity coming from gaming DApps.

Unlike traditional video games, most gaming DApps give their players complete control over the assets they earn in-game. They also offer them opportunities to monetize those assets outside of the game. Axie Infinity, for example, features in-game characters, virtual terrain, and in-game items in the form of NFTs. Players can store them in their crypto wallets, transfer them to another Ethereum address, or trade them with other players on NFT markets. Within the ecosystem, players can compete against each other to collect ERC-20 tokens that they can trade on exchanges. Typically, the more you play, the more in-game rewards you can get.


DeFi and DEX

Traditional finance is based on financial institutions that act as intermediaries. With DApps, everyone can use financial services without a central authority and maintain complete control of their assets. DeFi can also benefit low-income people by offering them access to a wide variety of financial services at significantly lower costs.

Requesting and granting loans are two of the most popular financial services provided by Decentralized Applications. DeFi DApps offer instant transaction settlements, minimal or no credit checks, and the ability to use digital assets as collateral. In DApp lending markets, users can enjoy greater flexibility. For example, lenders have more control over their loans by choosing which token to lend and on which platform. Users can also potentially earn 100% of the interest generated by the loan, since they do not have to pay intermediary fees.

Decentralized exchanges (DEX) are another fundamental example of financial DApps. These platforms facilitate peer-to-peer trading by eliminating intermediaries, such as centralized cryptocurrency exchanges. Users do not need to give up custody of their funds. Instead of transferring their assets to an exchange, they trade with another user directly with the help of smart contracts. Orders are executed on-chain and directly between both users' wallets. Since DEXs require less maintenance, they typically have lower trading fees compared to centralized exchanges. Some popular DEXs include Uniswap, SushiSwap, and PancakeSwap.


Entertainment

Entertainment is an integral part of our lives. With DApps, the daily activities that people enjoy are transformed into digital experiences that can also generate economic incentives. For example, Audius, a blockchain-based decentralized music streaming platform, eliminates the intermediaries necessary in the traditional music industry, to directly connect artists with their fans. It allows music curators to better monetize their content and produce immutable records of their work on the blockchain.

DApps also address issues faced by users of social media platforms. Centralized social media giants such as Twitter and Facebook often come under fire for censoring posts and improperly manipulating user data. With decentralized social DApps, like Steemit, the community can freely interact and express their opinions with fewer restrictions and censorship, while enjoying greater control over their personal information.


Governance

DApps can allow users to play a greater role in the governance of online organizations by introducing a more community-centric decision-making mechanism. With the help of smart contracts, users who hold governance tokens of a particular blockchain project can create proposals for the community to vote on, as well as cast their own votes on others' proposals anonymously.

One of the decentralized governance models is the Decentralized Autonomous Organization (DAO). DAOs can be considered completely autonomous DApps that use smart contracts to make decisions without a central authority. They have no hierarchy. On the contrary, they are economic mechanisms that align the interests of the organization with those of its members.


How to connect with DApps?

To interact with a DApp, you must first have a compatible browser extension wallet such as MetaMask, Trust Wallet, or Binance Chain Wallet. They only take a few minutes to set up. Some 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 on how to install it on your phone.


How to deposit BNB into Trust Wallet

To use DApps on BSC, you will need to have BNB to pay transaction fees. For example, you can withdraw BNB from your Binance spot wallet.

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


Tap [Receive] to view your BNB deposit address. You can copy and paste this address into your withdrawal wallet or scan the QR code to make the transfer.


After the transaction is confirmed on the blockchain, you will see the amount of BNB on the home page of your Trust Wallet.


How to add CAKE to your Trust Wallet list

The default list of Trust Wallet tokens does not include tokens from DApps like PancakeSwap (CAKE). To make CAKE visible in your wallet, you must first add it to the list.

Tap [Add Tokens] and search for “PancakeSwap”. You will see CAKE on different blockchains. Since we're using BSC, slide the button next to [BEP-20 CAKE].


CAKE should now be visible in your Trust Wallet token list.


The next step is to connect your Trust Wallet to PancakeSwap. You can connect it with Trust Wallet's built-in mobile browser or from a desktop computer.


How to connect to PancakeSwap with the Trust Wallet browser

1. Tap [Browser] on the Trust Wallet home page and go to the PancakeSwap website.


2. You will be asked to connect your Trust Wallet. Tap [Connect].


How to connect to PancakeSwap with a desktop browser

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


2. Click 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. Tap [New Connection] and scan the QR code.


5. In the application you will be asked to authorize the connection. Tap [Connect].



Conclusions

DApps are expanding the functionality of the web by enhancing conventional applications with blockchain technology. In the future, Decentralized Applications could bring even more innovative use cases to the market. As reported by DappRadar, in the first quarter of 2022, DApps recorded almost 2.4 million active users per day, and user interest is expected to maintain constant growth. However, developers of DApps and the blockchain networks on which they are built must still address current limitations before reaching mass adoption.