Short for decentralized applications, DApps are digital applications or programs that operate on a blockchain or peer-to-peer network of computers instead of a single computer. They are similar to conventional web apps, but their backend code runs on a decentralized peer-to-peer network, contrasting the typical apps where the backend code is running on centralized servers. DApps have existed since the advent of P2P networks. They are a type of software program designed to exist on the Internet in a way that is not controlled by any single entity.

What are DApps?

The Features of DApps

Beyond technical definitions, DApps have characteristics that differentiate them from traditional web applications:

  • Open Source: DApps are typically open source, meaning that anyone can view the app's source code. It operates autonomously and all changes must be decided by consensus, or a majority vote, by its users.
  • Decentralization: All records of the application's operation must be stored on a public and decentralized blockchain to avoid pitfalls of centralization.
  • Incentives: Validators of the blockchain are generally incentivized with rewards in the form of the app’s native cryptocurrency.
  • Protocol: The application community must agree on a cryptographic algorithm to show proof of value. For instance, Bitcoin uses Proof of Work (PoW) while Ethereum is transitioning to Proof of Stake (PoS).

How Do DApps Work?

Most DApps are built on blockchain technology, which serves as a decentralized, digital ledger for all transactions of any particular cryptocurrency associated with the app. This blockchain enables the process of smart contracts; self-executing contracts that have the terms directly written into code, which allows for trustless and decentralized agreement and execution. The DApps browser (like Ethereum's Mist or EOS's Scatter) reads the smart contract and presents a user-interface to create, manage and sign transactions.

DApps Usage in Cryptocurrency

In the world of cryptocurrency, DApps play a big role in executing contracts and transactions securely and efficiently, without requiring the intervention of a third party. This is revolutionary, as it transforms how business is conducted, cutting out middlemen and therefore reducing cost. Popular DApps are often related to finance, games, or decentralized exchanges. A notable example is "DeFi" (Decentralized Finance) applications, which aim to recreate traditional financial systems, with cryptocurrency at the heart.