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Every day we install various apps on our phones: Gmail, Instagram, Duolingo; you name it. These applications allow us to interact with their company’s servers through the app itself. However, in case of dApps, instead of reporting back to the main servers of a company (Google, Meta, etc.), a dApp reports back to the blockchain. It means you’re interacting with the blockchain instead of a centralised server. It results in a series of benefits, such as untrackability of the data, censorship resistance, etc.
dApps are built on smart contract networks, meaning a blockchain that doesn’t utilise smart contracts can’t have dApps built on it. Bitcoin is an example of such blockchains. In fact, Bitcoin was initially designed to be the money, and to allow transactions of its native coin. Ethereum, however, is programmable money. It was the first blockchain to utilise smart contracts. Smart contracts in simple terms, are an agreement between two parties without the need for a third party or a centralised authority to validate it. Click here to learn what smart contracts are.
dApps have the benefits of smart contracts and blockchain, so they are much more reliable than regular apps. They are open-source, censorship resistant, and won’t crash or go offline. We’ll now go through these benefits of a dApp.
Since dApps run on smart contracts, their codes are open-source, and it means anyone can take a look at the code and see how the dApp actually works. Also, other developers get to work on potential bugs and errors they find in the code, which results in constant improvement and growth of the system.
A downside of it is that hackers can easily look through the code to find errors and loopholes to attack the system. However, it still counts as a significant benefit over centralised apps. For example, you can never know how Instagram finds and recommends to you someone you haven’t talked to for eight years!
Since dApps run on a blockchain, it makes them censorship-resistant. It means they don’t have to answer to a certain organisation, and you wouldn’t have to worry if an app is sharing your data with the government. Also, since smart contracts are immutable, it means no one can stop them once they are activated. It is especially crucial in financial matters because this way no one can control your money.
Do you remember Facebook’s crash back in early October 2021? The crash lasted for only one hour, but Zuckerberg suffered a $7 billion loss because of that one hour. Crashes aside, technically, governments could shut down a centralised app at any given time. However, dApps would never go offline since they run on a blockchain.
Running on a blockchain means thousands of computers are involved with the dApp, and there is no ‘one single server’ to switch off at any time. It would be nearly impossible to turn off all the computers involved with the dApp.
Just like regular apps, dApps have many categories like DeFi apps, gaming apps, marketplaces, and tracking apps, to name but a few, with various features. In the case of special categories like finance or gaming, dApps have a much better performance than centralised apps since they are decentralised and have the privilege of running on the blockchain.
These dApps aim to provide various ways for people to invest in decentralised finance or DeFi. DeFi has opened a new door for investors to do things that can’t be done using traditional finance, like earning up to 100% APY (Annual Percentage Yield). Many of these dApps are widely used for yield farming.
Traders usually have a hard time finding a way to buy and sell their assets. With the help of decentralised exchanges or DEXs, traders can trade some of their assets for another asset. The benefits of using a DEX are that they require very low fees, and the swaps are almost instantly. The DEX also doesn’t require your identification or KYC (Know Your Customer) to let you trade. It means you can trade a huge amount of a token, for example, one million worth of Ethereum, without anyone wanting to know who you are.
How DEXs work? Well, they have ‘pools’ containing two assets that allow traders to swap back and forth between these two. For example, a DAI/ ETH pool will enable traders to trade their Ether with DAI or vice versa. Investors fill up these pools with their assets, and in return, receive the fees that traders pay while doing their swaps. These investors are called LPs (Liquidity Providers), and by providing liquidity for the pool, they earn passive income. These fees tend to add up and become a profitable investment for LPs.
These dApps have provided an excellent opportunity for the mass adoption of blockchain technology. Gamification is one of the main elements that made the mass adoption of blockchain possible and has attracted many gamers to this space. It is no secret that there are many games with different features and genres. Here we’ll go through the two most significant examples of such games: PlayDapp and Axie Infinity.
PlayDapp is an innovative gaming platform on the blockchain, consisting of various games. It implements the PG solution to play games without cryptocurrency and supports two kinds of tokens in the platform known as PLA and NFT. The vision behind PlayDapp is to create various blockchain networks and game dApps to attract more non-crypto gamers and users to play and make digital assets more valuable for everyone.
Axie runs a blockchain technology that provides a play-to-earn structure instead of mining new blocks on the chain. Players can earn by competing in PvP battles, breeding Axies and selling Axies, or collecting rare Axies. Smooth Love Potion is needed for breeding Axies, and SLPs are given to players with PvP matches and daily quests.
Blockchain technology has opened a new door for performing our tasks, and smart contracts provided us with infinite possibilities. With the help of these two, we can easily solve problems we face with traditional finance and centralisation of everything. dApps are a step towards making Web3 a reality: the third era of the Internet where everything is decentralised.
All in all, the fact you should keep in mind is that we are no financial advisors, and it’s essential that you always DYOR (Do Your Own Research) and check the communities of the project before making the final decision. Here at Cryptologi.st, we have gathered everything you need to know all in one place so you can weigh your options without browsing countless pages.