Brief content

Decentralized applications (dApps) are applications that run on blockchain networks. There are tons of dApps with different use cases such as gaming, finance, social networking and more.

While dApps may look like regular mobile apps on your phone, their backend system is different. dApps rely on smart contracts on a distributed network rather than a centralized system. This makes them more transparent, decentralized and resistant to attacks, but also creates some new challenges.


Introduction

Since the inception of Bitcoin (BTC) more than a decade ago, blockchains have evolved to open up many new features and uses beyond currencies. One of these new directions is the creation of decentralized applications (dApps) to use blockchain technology and improve many traditional sectors and services.


What are decentralized applications (dApps)?

Decentralized applications (dApps) are digital applications or applications based on smart contracts that run on blockchains instead of centralized servers. They look and work just like regular mobile apps on your smartphone and offer a wide range of services and features, from games to finance, social media and more.

As the name suggests, dApps run on decentralized P2P networks. One of the early reports indicated that dApps have the following features:

  • Open Source: The source code of dApps is publicly available, so anyone can inspect, use, copy, and modify it. There is no single person who controls the majority of its coins or tokens. Users can also suggest and vote for changes to dApps.

  • Decentralized and Cryptographic Protection: To ensure data security, all dApps information is cryptographically protected and stored on a public decentralized blockchain maintained by multiple users (or nodes).

  • Tokenized system: dApps can be accessed using a cryptographic token. They can use cryptocurrencies such as ETH or generate their own token using a consensus algorithm such as Proof of Work (PoW) or Proof of Stake (PoS). The token can also be used to reward miners and stakers.

According to this broad definition, the Bitcoin blockchain can be called a dApp and may be the first ever dApp. It is open source, its data is stored on a decentralized blockchain, it uses a cryptocurrency token and a PoW consensus algorithm. The same applies to other blockchains with the same characteristics.

However, today the term "dApps" usually refers to all applications that have the functionality of smart contracts and work in blockchain networks. The Bitcoin blockchain doesn't support smart contracts, so most people don't think of it as a dApp.

As of June 2022, most dApps exist on the Ethereum network. Blockchain offers a reliable infrastructure for dApps developers and extensions of existing use cases. But as dApps grew, developers began 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 run on smart contracts. Their internal code works in distributed P2P networks. A smart contract works as a set of defined rules that apply computer code. When the conditions are met, network nodes solve the tasks specified in the contract.

Once a smart contract is deployed on the blockchain, it is difficult to change or destroy it. That way, even if the dApp team has disbanded, users can still access it.


Advantages of dApps

Although the interfaces of dApps and traditional applications may look similar, dApps offer many advantages over their centralized counterparts. Web applications store data on centralized servers. A single compromised server can bring down the entire application network, rendering it temporarily or permanently unusable. Centralized systems can also suffer from data leakage or theft, putting the company and individual users at risk.

DApps, in contrast, are built on distributed networks with no central authority. With no single point of failure, dApps are less vulnerable to attack, making it harder for attackers to take over the network. A P2P network can also ensure that a dApp will continue to operate with minimal downtime even if individual computers or parts of the network fail.

The decentralized nature of dApps also means that users can have more control over the information they share. Since companies do not control users' personal data, there is no need to provide real-world identification to interact with the dApp. Instead, they can use cryptowallets to connect to dApps and have full control over the information they share.

Another advantage of dApps is that developers can easily integrate cryptocurrencies into their core functionality using smart contracts. For example, dApps on Ethereum can accept ETH as payment without integrating third-party payment systems.


Limitations of dApps

DApps could potentially be an important part of a censorship-free future, but there are two sides to every coin. Decentralized applications are still in the early stages of development, and the industry needs to overcome limitations related to scalability, code modification, and small number of users.

Running dApps requires significant computing power that can overwhelm the networks where they run. For example, achieving the security, integrity, transparency, and reliability that Ethereum strives for requires each validator to initiate and store each transaction completed on the network. This can reduce the rate of transactions per second (TPS) in the system and lead to network congestion and high gas commission.

Making changes to a dApp is also a challenge. Improving the user experience and security of the dApp will likely require constant changes to fix bugs, update the user interface, and add new features. However, once a dApp is deployed on the blockchain, it is difficult to change its internal code. Approval of any changes or improvements will require a consensus of the majority of network nodes, which will take a long time to reach.

Due to the large number of dApps in the market, it is difficult to stand out and attract many users. For a decentralized application to work effectively, it must achieve a network effect - the more users in a decentralized application, the more efficiently it provides services. Most users can also make the dApp more secure and protect it from hackers tampering with the open source code.


DApps offer a new approach for businesses in many industries to attract more users. Some popular uses for dApps are GameFi, Decentralized Finance (DeFi), Entertainment and Governance.


GameFi

Decentralized GameFi applications are growing in popularity, as evidenced by the rise in popularity of Axie Infinity, a play-to-earn game on the Ethereum blockchain. According to dAppsRadar, blockchain gaming activity increased by 2,000% in the first quarter of 2022 compared to 2021. As of March 2022, there were also 1.22 million unique active wallets (UAWs), with gaming dApps accounting for over 50% of the activity.

Unlike traditional video games, most gaming dApps give players complete control over their game assets. They also offer players the ability to monetize these items outside of the game. For example, Axie Infinity features game characters, virtual land, and game items in NFT form. Players can store them in crypto wallets, transfer them to other Ethereum addresses, or trade with other players on NFT marketplaces. Within the ecosystem, players can compete against each other to collect ERC-20 tokens that can be traded on exchanges. Generally, the longer they play, the more in-game rewards they can earn.


DeFi and DEX

Traditional finance relies on financial institutions acting as intermediaries. With dApps, everyone can use financial services without a central authority and keep full control over their assets. DeFi can also benefit low-income people by offering them access to a wide range of financial services at significantly lower prices.

Borrowing and lending are the most popular types of financial services provided by decentralized programs. Decentralized DeFi applications offer instant settlement of transactions, minimal credit checks, and the ability to use digital assets as collateral. Users can have more flexibility in lending marketplaces in the dApp. For example, lenders have more control over their loans, choosing which token to lend and on which platform. Users can also potentially earn 100 percent of the loan generated because they don't have to pay brokerage fees.

Decentralized exchanges (DEX) are another important example of financial dApps. Such platforms facilitate P2P trading by eliminating middlemen such as centralized crypto exchanges. Users don't have to give up keeping their funds. Instead of transferring their assets to an exchange, they trade with other users directly using smart contracts. Orders are executed in a chain and directly between users' wallets. Because DEXs require less maintenance, they have lower trading fees compared to centralized exchanges. Some of the popular DEXs are Uniswap, SushiSwap, and PancakeSwap.


Entertainment

Entertainment is an integral part of our life. With dApps, everyday activities that people enjoy are transformed into digital experiences that can also generate economic incentives. For example, Audius, a decentralized blockchain-based music streaming platform, cuts out the middlemen that exist in the traditional music industry by connecting creators and fans directly. This allows music curators to better monetize their content and create an immutable record of their work on the blockchain.

DApps also solve problems faced by users of social media platforms. Large centralized social networks such as Twitter and Facebook are often criticized for censoring messages and mishandling user data. With decentralized social dApps like Steemit, the community can freely interact and express themselves with less restrictions and censorship while gaining more control over their personal information.


Management

DApps can empower users to play a greater role in managing online organizations by introducing a more community-based decision-making mechanism. With the help of smart contracts, users who own control tokens of a particular blockchain project can create proposals for the community, which can be put to a vote and anonymously vote on the proposals of others.

One of the decentralized governance models is Decentralized Autonomous Organizations (DAOs). DAOs can be considered fully autonomous dApps that use smart contracts to make decisions without a central authority. They have no hierarchy. These are economic mechanisms that align the interests of the organization with the interests of individual DAO members.


How to connect to dApps?

To interact with dApps, you will first need a compatible wallet browser extension such as MetaMask, Trust Wallet, or Binance Chain Wallet. Setting them up takes just a few minutes. Some even offer mobile versions for quick access.

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


Adding 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 Trust Wallet and click [BNB Smart Chain]. Do not click [BNB Beacon Chain]. This option is for BNP-2 BNB 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 then copy and paste this address into your wallet for withdrawals or scan the QR code to make a transfer.


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


Adding CAKE to Trust Wallet

Trust Wallet's default token list does not include dApps tokens such as PancakeSwap (CAKE). For CAKE to be visible in your wallet, you need to add it first.

Click [Add Tokens] and search for "PancakeSwap". You will see CAKE on different blockchains. Since we are using BSC, select [BEP-20 CAKE].


You should now see CAKE in the list of 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 on a computer.


Connecting to PancakeSwap through the Trust Wallet browser

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


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


Connecting to PancakeSwap through a browser on a computer

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


5. The app will prompt you to allow the connection. Tap [Connect].



Final thoughts

DApps extend the functionality of the Internet by enhancing conventional applications with the help of blockchain technology. Decentralized applications can bring even more innovative use cases to market in the future. As of the first quarter of 2022, dApps have registered nearly 2.4 million daily active users, and user interest is expected to continue to grow, according to DappRadar. However, developers of dApps and the blockchain networks they are built on must overcome current limitations before they can achieve mass adoption.