If you spend enough time exploring the crypto and blockchain space, then it will not take long before you begin to ask yourself what is a dApp, and of course, what does dApp stand for? While Web3 does not rely solely on blockchain technology and dApps, they've gained a tremendous amount of traction in their short lifespan, and have become a deeply significant part of this entire industry.
dApps have become instrumental in redefining cryptocurrency and blockchain tech, and have become a cornerstone tool in the rising Web3 landscape. For this reason, they can be extremely hard to ignore. Yet at the same time, their sheer importance can also make it daunting for newcomers to try and grasp, as many of the most revolutionary ideas in this space are complex to get your head around.
However, there is no better time to learn about what is a dApp than right now, as doing so will help you get acquainted with future developments on the internet in months and years to come. This is for the simple reason that dApps are most definitely here to stay, with an increasing number of devs dedicating their time to them. Plus, the top dApps on the market at the moment can easily be found and analyzed through BitDegree’s own dApp tracker.
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Table of Contents
What is a dApp?
If we explore the question of what is a dApp, then we need to know what does dApp stand for? This is an abbreviation of the term decentralized application. However, without any context, this is bound to lead to another question: what is a decentralized application? Essentially, this is any application or program that runs on a varied and distributed range of computers that all belong to different people.
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Typically, this will mean that a dApp will run on a blockchain, as these are the gold standard of distributed and decentralized networks. For this reason, they are almost always associated with the blockchain industry. This is also the way I will primarily be explaining the topic of what are dApps. However, it should be noted that technically a dApp can exist on a different type of decentralized network or via different means.
For instance, non-blockchain-based dApps exist on the market such as Tor, which is a web browser, and Bittorent, which is a file-distribution program. Depending on how loosely you want to use the word application, IPFS (or Inter-Planetary File System) may count as a dApp as well. None of these use blockchains to function. However, they are essentially an exception to the rule and outliers in my discussion, so for the most part, I will stick with blockchain-related dApps.
One of the biggest features that set dApps apart from their traditional and centralized counterparts is that they run autonomously, meaning that no single entity can control or shut them down. This is because they run on a distributed network, and so somebody would need to gain control of the whole network if they wanted to halt any applications running on it.
Even if the website leading to a dApp was one day blocked or closed, this would not necessarily stop people from using it. This is because the underlying technology and architecture would still function perfectly, meaning that if there was a way to access its tools via some other method than the main website, then it would still be operational. In this sense, dApps can function extremely well as anti-censorship tools.
It is worth noting that, as a necessary feature of being connected to a greater network, dApps all run online, meaning they need an internet connection to function. This is because, without the internet, they would not be operational as their storage and processing is shared globally. This means that most dApps are accessible via a website link, or a mobile app that requires an internet connection.
It also means that the question of what is a dApp often involves some discourse on Web3 technologies, as both are related to each other. For instance, many websites and tools that people consider to be a part of the Web3 world are actually dApps, as Web3 is highly focused on decentralized and autonomous activity on the internet. This means that the overlap they face is tremendous.
Another feature of many dApps is that they are open-source. While this is not a necessity, many popular dApps, such as those you can find on BitDegree’s dApp tracker, are either wholly or partially open-source. The main reason for this is that the blockchain industry places a great level of importance on transparency and community involvement, and so many projects opt into an open-source model as a way of further including the public in their activity.
Overall, dApps, meaning decentralized applications, are online programs that connect to globally distributed networks of computers. Typically, this means they run on blockchains, and that they are also intertwined with the Web3 space as they share many of the same ideological and technical traits such as autonomous function and worldwide distribution. However, this only scratches the surface of understanding what are dApps!
How do dApps Run on a Blockchain?
When focusing on the question of what is a dApp, it is impossible not to come face-to-face with the question of how exactly can a program run on a blockchain. This is because blockchain technology largely underpins the dApp ecosystem, as they are the world’s current best way of distributing a network.
Depending on your exposure to the blockchain industry, the idea of a dApp running on a blockchain will either sound very commonplace or a little baffling. If you think of blockchain tech as typically only related to the sending of finances, such as how Bitcoin and Litecoin function, then this idea might be quite confusing to grasp. But in truth, blockchains are multi-faceted and can be used to power a huge range of projects.
Although, for starters, it should be noted that not all blockchains are built the same, and that some have more varied uses than others. A blockchain designed exclusively for sending and receiving money will probably not be able to run a dApp. However, depending on how you answer the question of what is a decentralized application, you could say that these blockchains are dApps in their own right.
To understand this, you would need to equate a network itself to a decentralized application. Which is not exactly ludicrous or unusual. In fact, some people actually argue that bitcoin is the first blockchain-based dApp. However, this is not exactly the topic of my discussion, as we are not looking at blockchains as dApps in their own right, but rather looking at dApps that run on top of blockchains.
For this to happen, you need a blockchain that can support a wide range of activities. These are referred to as blockchain ecosystems, and they include networks such as Ethereum, Solana, Binance Chain, and the NEAR Protocol. There are also blockchains that run on top of other pre-existing chains, which give them more utilities and can improve efficiencies, such as Polygon, and Optimism. These are Layer-2 chains. Developers sometimes deploy their dApps via Layer-2 solutions (such as ZK-Rollups, or Optimism) to avoid high fees, as well as to achieve faster transaction speeds.
The fact that Layer-2 blockchains can facilitate a range of actions means that developers can build dApps, meaning different tools and programs, on them. To do this, devs would create a tool, and then ensure that the tool connects directly to the blockchain ecosystem they choose to build on. However, we are still missing one crucial piece of the puzzle. To develop on a blockchain, you need to use and build smart contracts.
The Importance of Smart Contracts
While you may study the entire timeline of events from the Ethereum ICO to the DeFi Summer, to the Ethereum Merge and the Polygon 2.0 update, there's one thing that you should take the time and pay extra-close attention to - smart contracts.
Many blockchain ecosystems share one thing in common: they support smart contracts. A smart contract is an agreement to automatically execute a certain action or piece of code, once the parties involved have met certain conditions. These can support a range of different conditions or parameters, although most of them work by checking to see if certain data or assets have been sent to a certain place. This is a necessary piece of information to understand when learning what is a dApp.
Smart contracts are the backbone of dApps, meaning that most of them cannot exist without them. They allow people to perform certain actions asynchronously with other people and for their collective actions to have the desired consequences. In one sense, smart contracts are the glue that connects two people’s decisions together.
The best way to explain this is to look at DEXs, or decentralized exchanges. These are a very common type of dApp, meaning they make up a sizeable chunk of the industry. When using a DEX, you will often state that you want to trade a certain amount of cryptocurrency with another. Behind the scenes, this info gets passed to a smart contract, which then executes that trade once it finds a recipient who is also open to trade at that range.
Fun fact: Did you know that the programming language primarily used to write smart contracts on Ethereum is called Solidity, while Aptos uses Move?
This is what happens on Binance DEX, among a range of others DEXs. These create situations where people can trade with one another autonomously and independently, with smart contracts doing all the heavy lifting and handling technical aspects. Smart contracts can even be used to facilitate the creation of decentralized file storage, marketplaces for other types of digital assets such as NFTs and blockchain domains (such as those provided by Unstoppable Domains (UD) - a blockchain-based domain name service launched in 2018), and even games.
Essentially, they are deeply multi-faceted, and so long as you pick a robust blockchain ecosystem, then they have boundless possibilities. What is even better is that, as the blockchain industry gets more mature, the capabilities of smart contracts is increasing, meaning that the smart contracts of the future will allow for even more powerful dApps to exist.
Smart contracts do often need to integrate other tools and platforms in order to offer advanced functionality, though. That's something worth keeping in mind! For example, if you'd want your smart contract to trigger based on real-world events, you would need to use something called an "oracle".
Why Are dApps Significant?
When trying to understand what is a decentralized application, or what is a dApp, it helps to contextualize them and explain their importance. It cannot be stressed enough that dApps are at the heart of the Web3 industry, which some people may consider to be the next wave of the internet. In this sense, this means they have the potential to become interwoven with the way our online world functions and behaves.
This is because the core principles of Web3 are also major aspects of the dApp world. For instance, autonomy, as mentioned above, is a huge element of both concepts. dApps are autonomous in the sense that their creators do not have complete control over them and cannot even choose to turn them off or shut them down. Web3 values autonomy because it is all about creating experiences that are unstoppable by intermediaries.
Web3 tools and ideas often center around the ability to act and behave independently of any third parties. This is very clearly similar to how many dApps work. Not only this, but dApps and Web3 both value interconnectedness to an extremely high degree, meaning that the ability for members of a shared network to work together and trade information and resources in a peer-to-peer way is highly regarded.
Perhaps the best way to exemplify the significance of dApps, is to point out that many websites and projects are opting for their own dApps as they onboard themselves into the Web3 space. One of these was mentioned earlier: Binance DEX. Coinbase is also integrating with DEX technologies as well. Both companies have always been crypto-focused, but they are now expanding into decentralized networks, too.
There is another way of highlighting the seriousness and necessity of dApps. Their autonomous and distributed nature means they are inherently resistant to being shut down by governments or malicious organizations. This is important for countries where the flow of information and resources is sometimes halted, such as China and Nigeria. In places like this, dApps help to keep people informed and keep money circulating among citizens.
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Types of dApps
The question of what is a dApp is always bound to lead to a discussion on the types of dApps on the market. The dApp space is highly varied, with a wide range of different tools and programs available. By far the most well-known types of dApps out there are financial or trading dApps. These can either be simple order-book programs that work very similarly to traditional trading platforms, or they can be more automated.
An automated dApp trading platform is a place where, instead of making trades between two different participants and being connected via smart contracts, you place trades against a bot which is run by the application itself. These are referred to as automated market makers (AMM), and they are a cornerstone of the decentralized trading world.
In a nutshell, AMMs work by storing cryptocurrencies in one smart contract and then making those funds readily available for any traders who may want to exchange their own cryptocurrencies for them. They were instrumental in the early stages of the DEX world, back when order books would not have worked as it was hard for any dApp to have enough traffic and liquidity as they were so new and novel.
Closely tied to this are dApp marketplaces for other digital assets such as NFTs. These are very similar in their functionality to centralized NFT marketplaces, with the one difference being that there is no authoritarian control over them. Many people prefer them for buying goods such as pictorial NFTs or domains such as those provided by Unstoppable Domains because they prefer to support decentralized technologies where they can.
Another major element of the dApp world is the gaming sector. Once smart contracts became refined and powerful enough, developers began to build games with them. These games usually have a financial element involved in them, and some people consider them a form of gambling, but they oftentimes utilize fascinating blockchain-based elements and quirks to create unique game mechanics.
Alongside these, are social media dApps, which are beginning to spring up at the moment. These are websites or mobile apps that allow people to communicate to each other without the need for a third party or intermediary to facilitate their discourse. This is a great example of blockchain technology allowing people to stay connected, as centralized social media can easily block or stop certain people from discussing certain things.
Closely connected to this is the emergence of metaverse dApps. These are immersive blockchain-based virtual spaces where people can congregate and share resources together. In some ways, they are a hybrid between social media and gaming dApps, as they often utilize gamification aspects alongside social and communicative goals.
Benefits of dApps
It is clear to see that dApps provide a myriad of benefits. Some of which I have already discussed. For instance, anti-censorship and resistance to being shut down have been mentioned a few times already. However, it cannot be stressed enough just how revolutionary this is on a humanitarian level, as it prevents restrictive regimes from having complete control over how their citizens act and function.
A close idea to this is transparency. Due to the fact that they run on blockchains that often have public ledgers attached to them, dApps are able to offer transparency in the way that certain actions are handled. This is because they allow people to simply look through the associated ledgers and follow along with any developments or activity that happens within a dApp. Smart contracts can also be easily read by others, too.
And with transparency comes the desire for open-source development. While not every dApp is open-source, many of them are, which is great for people who are either eager to contribute to a project, or who want to audit a project themselves to make sure everything is in good working order. As there is a push for auditing and proof of genuine activity within the world of Web3, this encourages many devs to make their dApps open-source.
Challenges/Drawbacks of dApps
While there are many positives to decentralized applications, which is what dApp stands for, there are also some potentially huge drawbacks that people need to be mindful of before they venture into one. One of the largest drawbacks that you will learn when understanding what is a dApp, is that most of them often lack any customer service or support. Or at the very least their ability to help when issues arise is highly limited.
This is simply because, with the tremendous amount of autonomy that comes with dApps, also comes an inability for devs to directly help their user base with any troubleshooting or problematic behavior. The reason is that devs typically cannot debug for specific users or transactions as they do not have the power or authority to make such alterations. Devs cannot manipulate the whole network to fix user-specific issues.
This can make for a deeply discomforting experience, especially for novices to Web3 or the internet-at-large. With a centralized program, there is usually some sort of customer service center or department that can address a range of issues that arise on the user side. But with dApps, this is an impossibility. This is often made worse by the fact that many dApps can look rudimentary in terms of their user experience, as there are more back-end developers than front-end active in this space.
This becomes especially problematic when it comes to financial dApps, as people often get deeply stressed and frustrated when there are seemingly arbitrary or unnecessary problems occurring with the moving of their money. Naturally, money makes people agitated when there are faults, and so a lack of support can put many people off from using dApps to store, trade, or examine their finances.
Fun fact: Did you know that the Solana uses a unique consensus mechanism, called Proof-of-History?
Another huge pitfall that people face when questioning what are dApps, is that they cannot sufficiently use fiat on them. This is because dApps are blockchain-based, and so the only assets they can 100% fully handle are blockchain-based and cryptographic. As such, cryptocurrencies and NFTs are usually supported, however, fiat is a very different type of asset that cannot be represented cryptographically as easily.
There are workarounds for this, but they are not full and without faults. One method is to use stablecoins, which are cryptocurrencies that are pegged to the prices of certain fiat currencies. These are cryptographic and so they are compatible with dApps, but they are not exactly the same as fiat as their value is not standalone, but rather designed to mimic fiat.
Another method is to incorporate some centralization into a dApp, so that fiat can be introduced. This is referred to as an on-ramp, and it is common for some decentralized games and exchanges. While the addition of some centralization might prevent a dApp from being fully autonomous, transparent, and anti-censorship, it does, however, make them more accessible and palatable to newcomers who know little about the crypto and blockchain space.
Let’s help contextualize this discussion of what are dApps further by taking a look at some popular and well-known dApps on the market at the current moment. The best way to identify these is to visit BitDegree’s dApp tracker. This shows a range of projects such as NFTs, games, DeFi tools, gambling apps, and exchanges.
Here, I can see that at the moment, PancakeSwap is the current top dApp. This is a DEX running on the Binance network. Under this is the Oasis App, which is a compound yielding and financial borrowing protocol. Both of these are categorized as DeFi applications. In fact, the vast majority of dApps represented at the top of the tracker are DeFi projects and exchanges.
Although, there are definitely dApps on the tracker which belong to other categories. The highest of which is an app called SecondLive, which is an open-source metaverse project. Another top-performing game on the tracker is Upland, which also has strong metaverse elements.
The Future of dApps
Now is a good time in our exploration of the question of what is a dApp to briefly consider what may happen to this industry in the future. There are many potential changes and transformations that could occur to these types of applications in the coming months and years. For starters, it is fair to say that the quality and versatility of the dApp market is directly tied to the capabilities of the smart contracts that underpin it.
This means that, if in the future we are able to build more complex and refined smart contracts, then we are able to build greater dApps. This could come from pre-existing blockchain ecosystems and smart contract protocols, or it could come from new blockchain ecosystems with their own set of smart contract rules and structures.
Here, EVM needs to be mentioned, as well. The Ethereum Virtual Machine is a program that manages smart contract execution - it's compatible with the Binance Smart Chain, Solana, and even Scroll, to name a few. Many developers who create dApps on non-Ethereum networks turn to pay attention to EVM support, as one of the main prerequisite requirements.
One place that the aforementioned developments could arise from is DAGs, or Directed Acyclic Graphs. These are complex alternatives to standard blockchains, but in a nutshell, they are more efficient databases that tend to be faster and more scalable. These two features could mean that smart contracts could be made that work faster, which could further make for dApps that run in a speedier way.
Another deeply important change that is likely to occur in the dApp space is that there are likely to be improvements in user-experience. Sadly, despite the range of dApps on the market, there is still an issue with making them user-friendly, especially for people who are new to blockchain technologies. However, with the huge push for Web3 in the media, there is a growing number of user-experience devs entering the space.
Fun fact: A recently launched network - Celestia - is a modular blockchain that offers a unique approach to project development and network scalability.
This means that there should be better-looking dApps with more pleasant experiences and aesthetics in the near future. The most obvious benefit is that there will be less confusion among newcomers, as well as perhaps even an increase in people choosing to onboard onto Web3 tools due to a more beautiful design and layout.
You should now have a solid grasp of what is a dApp, meaning you can also answer the question of what is a decentralized application. Not only this, but you should have an understanding of what makes them so instrumental in Web3 space. They push the boundaries of blockchain technology, and in doing so, they are helping to shape and redefine the way the internet currently functions.
This is big news, not only for crypto veterans and people well-versed in this industry, but also for people who are not particularly tech-savvy and who might not even know what does dApp stand for. Many people will even use these programs without ever knowing what is a dApp. This is because they are poised to change the way we all act online, regardless of our prior knowledge or experience with blockchain tech.
The answer to what is a decentralized application, or what is a dApp, is a necessarily long one. This is because they are a deeply varied and multi-faceted technology, capable of making tremendous changes to the way the web operates. And with big names in crypto such as Binance and Coinbase paying attention to the dApp space, they are sure to only grow in significance as time goes on.