What are Decentralized Apps (Dapps)?

By Joseph O'Neill, Scott Chipolina and Matt Hussey

It’s time to cut out the middleman. Why pay for a company to provide a ride-sharing service when you could use an app that connects drivers directly with riders and doesn’t take a cut? That's the promise being offered by dapps, or decentralized apps.

Read on for an overview of what they are, how they work, some of the opportunities they present, and and the challenges these new types of applications face.

What is a dapp (decentralized application)?

Dapps are decentralized apps. They are like normal apps, and offer similar functions, but the key difference is that they are run on a peer-to-peer network, such as a blockchain, using smart contracts.

As dapps are decentralized, they can’t be controlled by a single person or entity. Dapps also often have the following features:

• 🖧 They are open-source and operate on their own without anyone entity controlling them.
• 🔍 Their data and records are public.
• 🟡 They use a cryptographic token to help keep their network secure.

While many in the blockchain and crypto community believe that dapps should have all of these features, as the industry has matured, there are dapps that use some, a combination of, or none of the above.

What are the benefits of dapps?

Dapps have several exciting aspects:

• Censorship-resistant - With no single point of failure, it’s very difficult for governments or powerful individuals to control the network.
• No downtime - Relying on a peer-to-peer system ensures that the dapps continue to work even if individual computers or parts of the network go down.
• Blockchain-based - As they are made using smart contracts, they can easily integrate cryptocurrencies into the basic functionalities of the dapp.
• Open-source - Open-source dapps encourage the widespread development of the dapp ecosystem and enable developers to build better dapps with more useful or interesting functions.

What are the weaknesses of dapps?

While dapps promise to solve a lot of the problems faced by regular apps, there are also some disadvantages.

• Hacks - As many dapps are run on open-source smart contracts, hackers have the opportunity to review code and probe the networks looking for weaknesses. This has led to a spate of hacks on popular dapps.
• Usability - A lot of dapps have poor user interfaces, something that has drive many users away. You can read all our reviews on these services on our reviews page. However, this is something that’s improving as time goes on.
• Users - As with many Web 2.0 apps, the more users a dapp has, the more effective the network is at delivering those services. This is often referred to as the network effect. Dapps struggle from low user numbers, which can make them less interactive. It can also make them less secure, as a dapp's security is often dependent on user numbers.

What dapps are out there?

A good place to start researching dapps is DappRadar, a website that lists thousands of dapps built on networks including Ethereum, BNB Chain and Polygon.

Among the most popular dapps at present are decentralized finance (DeFi) applications such as decentralized exchanges (DEXs). These enable people to swap one cryptocurrency for another without the need for a centralized gatekeeper like you'd find on exchanges like Binance, and Coinbase.

Ethereum dapps

Many leading dapps are built on Ethereum, a smart contract blockchain. They include:

• 🦄 Uniswap - A decentralized exchange that enables users to swap tokens peer-to-peer rather than through a centralized intermediary.
• 💰 Compound - A DeFi lending protocol.
• 🎰 PoolTogether - A "no-loss" crypto lottery.
• 🎧 Audius - A decentralized music streaming platform.
• 🎮 Decentraland - A metaverse platform in which users can interact as avatars, and buy NFTs representing virtual objects or land.
• 🧜‍♂️ Gods Unchained - An NFT-powered card game.
• 💲 MakerDAO - A smart contract that enables users to interact with the Dai stablecoin system.
• 👀 LooksRare -An NFT marketplace that rewards users for participating.

A new way to build a business

The decentralization of dapps has led to whole new ways of building businesses: the decentralized autonomous organization, or DAO. One of the most fascinating examples is Augur, a decentralized betting marketplace.

The creators built the marketplace and released it, and while it is now maintained by its users, the creators now work on completely separate projects.

Dapp scams and hacks

Sadly, dapps can be vulnerable to hacks. In the first quarter of 2022 alone, $1.2 billion was stolen in hacks and exploits, according to DappRadar. And the numbers involved are massive. In August 2021, Poly Network was exploited for $611 million; March 2022 saw play-to-earn game Axie Infinity's Ronin bridge hacked for $552 million.

Hackers have used numerous techniques to target dapps, including DeFi flash loan exploits and attacks on the cross-chain bridges that enable users to transfer funds between different blockchains.

But some attacks have relied on good old-fashioned social engineering; in December 2021, Bitcoin-to-DeFi bridge Badger DAO lost $120 million after scammers conned members of the DAO into approving malicious transactions.

The future of dapps

Dapps are still in their early stages. However, there are already thousands of dapps that offer myriad services, be it playing games, investing in DeFi, or trading NFTs.

By Q1 of 2022, there were almost 2.4 million daily active users of dapps. But there's still a long way to go. Before dapps reach the mainstream, developers and the networks on which they build dapps have a long list of challenges to work through, including scalability, security, and UX.

Once they do, the dawn of the decentralized app will be upon us.

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