Decentralized Apps Explained: What Is a Dapp and How It Works
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By: Natali

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dApp is a short-term decentralized application. It's an application (or service) built on a blockchain network, allowing users to complete secure peer-to-peer interactions without intermediaries such as banks or other middlemen.

Decentralized apps use smart contract technology to automate transactions while providing transparency, security, and freedom of expression. They deliver a new way of interaction, creating a fair atmosphere in naturally trustless environments.

But how does dApp work? What makes it decentralized, and how to find out its type? And most importantly, how to use it properly? You’ll find answers to all those questions and more in this article from Defiway experts.

What Makes a DApp Decentralized?

Decentralized apps (dApps) use blockchain technology, open-source code, and distributed storage to spread control and decision-making across a network of nodes. In contrast, centralized apps have a single entity controlling the data and operations of the app.

But what makes them so favorable to the crypto community? What’s the hidden gem of dApps? Those applications offer increased transparency and security due to sharable decision-making by each community member.

Decentralized apps use blockchain to maintain secure and transparent transactions without a central authority. They are censorship-resistant because no middlemen or “chief” controls which block something just because they don’t like it. It makes transactions more direct and efficient, removing unnecessary fees. There is no “main server” for any truly decentralized app. Data in dApp is stored across multiple nodes in the network equally. It makes dApps more resilient to data breaches and hacking attacks. If one of the nodes fails, there are still others that can temporarily take its place.

In contrast, regular apps have a predetermined number of servers, so it will be easier to knock them out with software or hardware actions. They rely on a single authority to control which opens up many opportunities for internal censorship.

How Dapps Work

As we said, dApps use blockchain technology to provide a secure, decentralized, and transparent system. Each block in the chain contains a record of users’ transactions. Once added to the chain, it cannot be altered in any way. Those data blocks are additionally secured by smart contract cryptography and kept in various distributed storages. Smart contracts are written into the app’s code to help keep each deal legitimate. They execute automatically when both parties meet certain conditions described in the contract (code). You can use various consensus mechanisms in your app. The most common are proof of work and proof of stake.

Smart contracts help validate transactions faster and prevent fraud due to reduced human factors. They also can automate many aspects of business, making it more efficient. It can be used almost in every industry: from finance and real estate to education and non-profit organizations.

Finally, Dapps often use tokens to incentivize network participants. They can use or trade those tokens to access features and services within the application. But how to make it user-friendly? The same way as with any other app. Developers and designers create a user interface similar to the regular app in this field. But instead of a centralized server, they connect them to the decentralized network.

Fundamental differences between dApps and regular apps hide in the back end, so the user can still get a great experience without spending hours studying blockchain technology. Here are some common dApps:

  • Brave Browser. It is a dApp web browser that rewards its users for supporting content creators and viewing ads with its native cryptocurrency called BAT.
  • Uniswap. It is a decentralized exchange where users can trade directly without any middleman.
  • Gitcoin. It is a decentralized platform for funding various open-source projects and independent developers.

Types of Dapps

There are three types of decentralized apps designed for different purposes complementing each other.

Type 1 provides a blockchain-based infrastructure for building various decentralized applications. In other words, they use their blockchain as a platform. They are decentralized and fully independent, like Ethereum, Litecoin, or Bitcoin Cash. You can also find many Type 1 cases in decentralized finance and supply management. Compound, Uniswap, and VeChain are prime examples of how you can implement those apps in real life.

Type 2 is used to create decentralized marketplaces where users can sell and buy goods or services. They can operate the infrastructure provided by more basic Type 1 applications. The key difference is that Type 2 apps don’t have a native cryptocurrency. They are using already existing currencies, like Gnosis, uPort, and Augur that are built on top of the Ethereum blockchain.

Type 3 is used to create decentralized autonomous organizations (DAOs) that operate on a blockchain basis. They are often used in decentralized finance systems, social networks, gaming, or even autonomous governments. You can use DAOs when you need decentralized governance and decision-making. CryptoKitties, MakerDAO, Spells of Genesis, and Steemit are prime examples of Type 3 Dapp.

How to Use dApps

We understand that the whole dApp concept may still sound confusing. But you, as a user, don't need to worry about tech specs. Just stick to those guidelines:

  1. Select the dApp that meets your needs. Check that your device satisfies the requirements.
  2. Connect to dApp by following the on-screen instructions. Each app has its instructions that may vary depending on the case.
  3. Take some time to familiarize yourself with the interface. Some apps are less user-friendly than others. Be patient and take your time to explore all functions.
  4. Perform your first actions. Start from the most basic ones such as buying or selling tokens and staking digital currencies. Follow the instructions provided by the app.

Always remember about cyber security to keep your digital wallet safe. Use only highly-trusted platforms and wallets, like Ethereum, Binance Smart Chain, Polkadot, Defiway, Coinbase Wallet, CryptoKitties, Axie Infinity, etc.

Don’t trust the app when it promises you mountains of gold, like Terra ecosystem. Use separate addresses for each dApp to avoid cross-contamination and reduce the risk of losing your funds. Use 2-factor authentication where possible and keep both passwords and private keys safe. And don’t forget to update to maintain the latest security patches.

Wrapping Up

dApp is the next step in the crypto industry evolution. They are providing user-friendly services while serving on a blockchain basis. Those applications integrate complex blockchain solutions into the lives of general users far from the technology industry.

It creates a trusting relationship with industries that were previously unfriendly to a general user, such as finance, insurance, supply chains, and health care. There is no central server in dApps: data is distributes between various nodes in one big chain. It brings more security and transparency at the same time.

dApps are censorship resistant because their rules are described in the smart contracts which are part of the open-source code. In regular apps, owners can censor whatever they want at any moment in time. You won’t get unexpected censorship or ban in the decentralized app: all rules and restrictions are written in their code.

There are three main types of dApps. Type 1 is the most basic option, and other types act as add-ons that specify their architecture for more complex tasks. Want to find out more about the crypto world? Subscribe to the Defiway socials and check our blog to get practical information and fresh crypto news among the first!