What is a dApp?
The world is changing. Technology is taking us into a new era of decentralization, where we don’t have to rely on large corporations and institutions to deliver services and products.
Decentralized applications (dApps) and decentralized autonomous organizations (DAOS) are the next breakthroughs in the world of technology.
Built on the blockchain, these systems are powered by a network of computers, allowing them to operate without the need for a centralized authority.
Continue reading to learn what they are, how they work and what are their main advantages.
The acronym dApp stands for the decentralized application. These types of applications harness the power of the blockchain to run digital services without the need for a central server or third party.
This means that instead of one machine being responsible for the entire application, many computers work together to process and store data. Such a way of functioning reduces the risk of a single point of failure and allows the system to be more secure than traditional applications.
Decentralized applications gain popularity due to distributed ledger technologies.
Since the first DApp that was published on the Ethereum blockchain in 2016, thousands of decentralized applications have been built on other blockchains as well.
The statistics show that there are currently ~4000 existing dApps. Decentralized applications offer a range of functions, but their most popular use case is financial—dApps lets you send and receive money, buy and sell goods and services, and have secure financial transactions with the use of cryptocurrency.
Decentralized applications are adopted by a growing number of developers and entrepreneurs as the primary way to build and run different applications on the blockchain. More so, they have also been adopted by a growing number of users as the main way to interact with the blockchain.
How does a dApp work?
One of the key characteristics of the decentralized application is that it is completely open-source. These types of applications operate autonomously and with no entity controlling the majority of the network’s computational power. In order to operate, they use blockchain for data storage and smart contracts for their app logic.
A smart contract is a programming code that runs on a blockchain. It is what enables DApps to function as protocols.
These protocols determine how digital services are run on a blockchain network.
More specifically, a smart contract is a set of rules that are stored on the blockchain and get automatically executed when a certain condition is met. For example, a smart contract could be used to automatically exchange a cryptocurrency when a shipping address is provided.
This reduces the risk of human error and fraud, as the terms of the contract are enforced by the code.
Check our article on smart contracts.
Many dApps built on Ethereum generate their cryptocurrencies or tokens. These tokens act as proof of value on the network. They are distributed to users as a reward for using the application.
The more tokens a user holds, the more value they have on the network, which gives them a greater incentive to use the application. This ensures that applications have a strong network effect and that users will continue to use them even when their original purpose has been achieved.
Main characteristics of a decentralized application:
- It is completely open-source
- No entity has the majority ownership of the tokens
- Application data is stored on a decentralized blockchain
- It generates tokens that act as proof of value
- Decentralized application tokens are distributed as rewards on the network.
Pros and cons od dApps
Decentralized applications, or dApps, are the next evolution in the way we interact with the world. The main advantage of dApps is that they are built to be more efficient, more trustworthy, and more secure than traditional apps and services.
They can safeguard user privacy and keep all of their transactions anonymous. More so, they are decentralized. This means that unlike standard Apps such as TikTok or Facebook, dApps don’t require a central authority or a third party.
The main disadvantage of dApps is that they are a relatively new technology and therefore in early developmental stages. This means that dApps are prone to certain problems and unknowns.
One of the things dApps should work on is bettering their user experience. A user-friendly interface would help dApps make decentralized applications easier to use which would attract new audiences.
Another point worth mentioning is that the data and code published to the blockchain are hard to modify. This could be a problem when it comes to making updates to the dApp. Regular and ongoing updating of dApps is essential for making enhancements or correcting bugs and security risks.
- It is trustworthy and secure
- It is efficient
- It is decentralized
- It offers anonymity
- It is in the early developmental stages
- Needs to become more user-friendly to engage a wider population
- Updates might be hard to make
DApps worth checking out
PancakeSwap – A decentralized cryptocurrency exchange built on the Binance Smart Chain.
Alien Worlds – An innovative Metaverse where everything is tokenized. It is connected to Ethereum, WAX, and Binance Smart Chain.
Uniswap – A cryptocurrency exchange that uses a decentralized network protocol built on the Ethereum blockchain.
What is DAO?
DAO stands for decentralized autonomous organization. It represents a community-led entity with no central authority. The DAO system is fully decentralized: no one person or group has control over the platform or its decisions.
Decisions are proposed by the community, voted on by the community, and executed by the system. Everything runs on a code that is open to the community for review, adjustment, and improvement. In other words, the system is transparent: all decisions and the logic behind them are visible to the community.
This means that anyone can review both the decisions that were made and the data that the system is operating on. This system of transparency allows for the highest level of trust and accountability.
“The DAO” was the first and by this day the most popular decentralized autonomous organization. It was one of the most exciting projects in the digital currency space. The idea behind it was to eliminate human error or manipulation of investor funds by giving decision-making power into the hands of an automated system and a crowdsourced process.
The DAO launched in April 2016 after raising more than $150 million in funds. But then came the contentious argument over the DAO’s future, and the massive hacking incident of June 2016. In September 2016, several prominent digital currency exchanges de-listed the DAO to the dismay of many digital currency enthusiasts.
This hack is a whole another post we will cover in a future, it shook blockchain comnunity to the core at the end resulting in Ethereum hard fork and spliting of the network, if you would like to know more check this article on wikipedia
How does a DAO work?
DAO can be understood as a social organization embodied by rules integrated into a transparent computer program. The rules of the decentralized autonomous organization are established by a core team of community members through the use of smart contracts.
The rules of the DAO are publicly available on the blockchain, enabling anyone to review and discuss them. Once the DAO is operational, the rules of the DAO will be enforced by computer programs that automatically make decisions regarding the operation of the DAO based on the rules.
The Decentralized Autonomous Organizations protocol sells tokens in order to receive funding and bestow governance. Token holders are given certain voting rights depending on the number of tokens they are holding. Once the funding goal is reached, the DAO is ready for deployment.
The code governing the deployment of the DAO is then published, and the process of building the decentralized autonomous organization is largely in the hands of the community.
Main characteristics of decentralized autonomous organization:
- Member-owned communities
- No centralized leadership
- Use of smart contracts and blockchain
- Has its own token system
- DAO information is publicly available
Pros and cons of DAO’s
The main advantage of the decentralized autonomous organization lies in its core idea of eliminating human error from the organizational processes.
This is done by implementing an autonomous structure. Such structures make decentralized autonomous organizations more efficient and ensure their business processes run smoothly.
An important advantage of any DAO is the fact that it is community-led. This means that every investor has a unique role in shaping how the organization is run. Everything that happens in the DAO is recorded as a lasting part of the blockchain.
This information is completely transparent to everyone who holds a stake in the DAO.
The most prominent possible drawback of any DAO is its code. As history shows, DAOs can be a target of hacker attacks. That is the reason why a decentralized autonomous organization needs to establish a strong code security practices.
Another disadvantage any DAO is facing is the fact that blockchains and cryptocurrency are still new technology. As it is developing, there is much to be learned before DAOs reach their full potential.
- It eliminates human error
- It uses the autonomous structure
- It is decentralized and community-led
- It is transparent
- Its security depends on the code
- It can be targeted by hacker attacks
- It is still in an early developmental stage
DAO’s worth checking out
BidDAO – A decentralized project for developing a decentralized tokenized economy that is accessible to everyone.
DASH– A decentralized digital payment project focused on offering faster transactions in comparison to Bitcoin.
0x– A autonomous crypto exchange working through smart contracts
Wrapping it up
Decentralized applications and decentralized autonomous organizations are two of the most exciting technological innovations to come along since the invention of the internet.
These systems hold the potential to reshape the world we live in. They are built on a foundation of fairness, transparency, and equality, by people and for people.
While both dApps and DAOs are still in their early developmental stages it is clear that the future they are holding is bright and promising.