Summary

Decentralized applications (DApps) are applications that run on a blockchain network. DApps are diverse and have different use cases, including games, finance, social media, and more.

Although DApps look similar to ordinary mobile apps on mobile phones, their backend systems are completely different. DApp operation relies on smart contracts on a distributed network rather than a centralized system, which makes it more transparent and decentralized, and more resistant to attacks, but at the same time it also brings some new challenges .

Introduction

Since the birth of Bitcoin (BTC) more than a decade ago, blockchain has continued to evolve and has unlocked many new features and use cases beyond currency. One of them is building decentralized applications (DApps) that leverage blockchain technology to advance traditional sectors and services.

What is a decentralized application (DApp)?

Decentralized applications (DApps) are digital applications powered by smart contracts that run on the blockchain , rather than on a centralized server. DApps look similar to ordinary mobile apps on smartphones and can provide various functions and services such as games, finance, and social media.

As the name suggests, DApp runs on a decentralized peer-to-peer network. An early report states that DApp has the following characteristics:

• Open source: The source code of DApp is open to the public, which means anyone can verify, use, copy and modify . No single entity controls a majority of the tokens. Users can also make suggestions and vote on DApp updates.

• Decentralization and secure encryption technology: To ensure data security, all information of DApp is protected using encryption technology and stored in a public database maintained by multiple users (or nodes). on a decentralized blockchain.

• Tokenization system: Users can use encrypted tokens to enter DApp. DApps can use cryptocurrencies such as Ethereum, or generate native tokens through consensus algorithms such as Proof of Work (PoW) or Proof of Stake (PoS). Tokens can also be used to reward contributors such as miners and stakers.

According to this broad definition, the Bitcoin blockchain can be defined as a DApp— — and arguably the first DApp ever. The Bitcoin blockchain is open source and all data is stored on the decentralized blockchain. The blockchain operates on cryptographic tokens and uses a PoW consensus algorithm. Other blockchains with the above characteristics can also be classified as DApps.

Today, however, the term "DApp" usually refers to a DApp that has smart contract functionality and runs on a blockchain network app. The Bitcoin blockchain does not support smart contracts, so most people will not consider it a DApp.

As of June 2022, most DApps are built on the Ethereum network. Ethereum provides a powerful infrastructure for DApp developers to expand existing use cases. But as DApps become more mature, developers have begun to build DApps on other blockchains such as Binance Smart Chain (BSC), Solana (SOL), Polygon (MATIC), Avalanche (AVAX), and EOS.

How does DApp work?

DApp is an application driven by smart contracts, and its backend code runs on a distributed peer-to-peer network. A smart contract is a set of predefined rules enforced by computer code. When 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 or destroy the code. Therefore, even if the team that built the DApp has disbanded, users can still access the DApp.

Advantages of DApp

Although the interfaces of DApps and traditional applications look similar, DApps have many advantages compared to centralized applications. Web applications store data on centralized servers. Problems with a single server can affect an application's entire network, rendering it temporarily or permanently unavailable. Centralized systems can also suffer from data leaks or theft, putting companies and individual users at risk.

In contrast, DApps are built on distributed networks without a central authority. Since there is no single point of failure, DApps are more resistant to attacks and it is difficult for malicious attackers to hijack the network. Even if individual computers or parts of the network fail, the C2C network can ensure that DApps can resume operation in the shortest time.

The decentralized nature of DApp also means that users can have more control over their disclosed information. Since no company controls users’ personal data, users do not need to provide their real identities to interact with DApps. Instead, they can use a cryptocurrency wallet to connect to a DApp and have complete control over their public information.

Another advantage of DApps is that developers can leverage smart contracts to easily integrate cryptocurrencies into the basic functionality of the application. For example, DApps on Ethereum can adopt ETH as a payment method without integrating third-party payment providers.

Limitations of DApp

DApp is expected to become an important part of building an audit-free future. But there are no absolutes. For now, decentralized applications are still in the early stages of development, and the industry has yet to solve many problems such as limited scalability, cumbersome code modifications, and a small user base.

DApp requires strong computing power, which may overload the network on which it operates. For example, in order to achieve the security, integrity, transparency, and reliability that Ethereum strives for, DApps require every validator to run and store every transaction executed on the network. This may reduce the system’s transaction per second (TPS) rate, leading to network congestion and increased gas charges.

How to modify DApp is also a problem. In order to improve user experience and security, DApp developers may need to constantly modify code, fix bugs, update user interfaces and add new features. However, once a DApp is deployed on the blockchain, it is difficult to modify its backend code. Any changes require a majority of network nodes to reach consensus, and this step may take a long time.

There are so many DApps on the market that it is not easy to stand out and attract a large number of users. For a DApp to operate efficiently, it needs to achieve network effects—the larger the user base, the more efficient it is in providing services. The increase in the number of users will also make DApp more secure and prevent hackers from tampering with its open source code.

Common DApp use cases

DApp provides new ways to expand user coverage for all walks of life. Some common DApp use cases include GameFi, decentralized finance (DeFi), entertainment, and governance.

GameFi

GameFi DApp’s popularity is rising, and the rise of Axie Infinity, a play-and-earn game on the Ethereum blockchain, is a typical example illustration. According to data from DappRadar, blockchain gaming activity increased by 2,000% in the first quarter of 2022 compared to 2021. In March 2022, gaming activities attracted a total of 1.22 million unique active wallets (UAW), of which more than 50% of user operations came from gaming DApps.

Unlike traditional video games, in most gaming DApps, players have full control over their in-game assets, as well as opportunities outside of the game Monetize these items. For example, the game characters, virtual land and game items in Axie Infinity are all NFTs. Players can store it in a crypto wallet, transfer it to other Ethereum addresses, or trade it with other players on the NFT market. Within the ecosystem, players can compete with each other to collect ERC-20 tokens that can be traded on the exchange platform. Typically, the longer you play, the more in-game rewards you can earn.

Decentralized finance and decentralized trading platforms

Traditional finance relies on financial institutions to act as middlemen. With DApps, everyone can use financial services without any central authority and have full control over their assets. DeFi also benefits low-income people, allowing them to enjoy various financial services at very low fees.

Lending is the most common type of financial service in decentralized applications. DeFi DApps provide instant transaction settlement, perform almost no credit checks, and allow digital assets to be used as collateral. Users can have greater flexibility in the DApp lending market. For example, lenders can choose which tokens to lend on which platform, giving them more control. Users can also earn 100% interest on their loans as they do not need to pay any intermediary fees.

Decentralized exchange platform (DEX) is another important use case for financial DApps. Such platforms facilitate peer-to-peer transactions by eliminating the need for intermediaries such as centralized digital currency trading platforms. Instead of transferring assets to a trading platform and placing them in the custody of a third party, users can trade directly with another user through smart contracts. Orders are executed directly between user wallets on the chain. Decentralized exchanges require less maintenance, so transaction fees are much lower than centralized exchanges. Popular decentralized trading platforms include Uniswap, SushiSwap and PancakeSwap.

Entertainment

Entertainment is an integral part of our lives. With DApps, daily activities that people enjoy are being transformed into digital experiences that can earn economic benefits. For example, Audius, a decentralized music streaming platform based on blockchain, eliminates the middlemen in the traditional music industry and directly connects artists and fans. Musicians can better monetize their content and leave an immutable record of their work on the blockchain.

DApps are also working to solve the 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. On decentralized social DApps like Steemit, community members are subject to less restrictions and censorship. They can express their opinions and interact freely while better controlling their personal information.

Governance

By introducing a community-centered decision-making mechanism, DApp allows users to play a greater role in the governance of online organizations effect. With the help of smart contracts, users who hold the governance tokens of a specific blockchain project can create proposals for the community to vote on and anonymously vote on others' proposals.

One of the decentralized governance models is the decentralized autonomous organization (DAO). DAO uses smart contracts to make decisions without a central authority and can be considered a fully autonomous DApp. There is no hierarchy within the DAO, but economic mechanisms are used to align the organization with the interests of individual members.

How to associate with DApp?

When interacting with the DApp, you first need to have a compatible browser plug-in wallet, such as MetaMask, Trust Wallet or Binance Chain wallet. These wallets only take a few minutes to set up. Some wallets have also launched mobile versions to improve convenience.

Here we take Trust Wallet as an example to demonstrate how to connect the wallet to PancakeSwap on Binance Smart Chain (BSC). If you don’t have Trust Wallet yet, please read this Academy article to learn about the installation process on mobile.

Deposit Binance Coin to Trust Wallet

When using a DApp on Binance Smart Chain, you need to pay some Binance Coins as transaction fees. At this point, you can withdraw Binance Coin from your Binance Spot wallet.

Enter your Trust Wallet and click [Binance Smart Chain]. Please do not click on [Binance Beacon Chain]. This option is available for BEP-2 Binance Coins on the Binance Beacon Chain and cannot be used to pay transaction fees on the Binance Smart Chain.

Click [Receive] to view your Binance Coin deposit address. You can then copy and paste this address into your withdrawal wallet or scan the QR code to transfer funds.

Blockchain Once this transaction is confirmed, the Binance Coin amount will be displayed on your Trust Wallet homepage.

Add CAKE to your Trust Wallet list

Trust Wallet’s default token list does not include DApp tokens like PancakeSwap (CAKE). In order for CAKE to appear in your wallet, you need to add it to the list first.

Click [Add Token] and search for "PancakeSwap". You will see CAKE tokens used on different blockchains. We are using Binance Smart Chain, so click the button next to [BEP-20 CAKE] to switch.

This way CAKE will appear in your Trust Wallet token list.

The next step is to associate your Trust Wallet with PancakeSwap. You can do this using Trust Wallet's built-in mobile browser or desktop.

Associate PancakeSwap through Trust Wallet browser

1. Click [Browser] on the Trust Wallet homepage and enter the PancakeSwap website.

2. The system will prompt you to associate the Trust Wallet. Click [Associate].

Associate PancakeSwap through desktop browser

1. Enter PancakeSwap website and click [Associate Wallet].

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

3. Open the Trust Wallet application and enter [Settings]-[WalletConnect].

4. Click [Create Association] and scan the QR code.

5. The application will remind you to allow this association. Click [Associate].

Summary

DApp is using blockchain technology Upgrade legacy applications to extend web capabilities. In the future, decentralized applications may bring more innovative use cases to the market. According to DappRadar reports, in the first quarter of 2022, the number of daily active users of DApp was close to 2.4 million, and it is expected to be favored by more users. However, DApps and the blockchain networks they run on need to solve many current limitations before they can be promoted on a large scale.