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What are Decentralized Applications (dApps)?

November 2, 2021 by Jeremiah

Decentralized Applications aka dApps are interfaces that interact with the blockchain through the use of smart contracts.

The main benefit of dApps is their censorship resistance and open-source ecosystem.

On the surface, dApps look and behave like regular web and mobile applications…

The key difference is that these applications are run on a peer-to-peer network with no one person or entity having control over the entire ecosystem.

To participate in a decentralized application you will need to purchase cryptographic tokens such as ETH or SOL (and soon ADA) to use the dApp that are launched in the relative blockchain ecosystems to keep the networks secure.

Page Contents

  • What Are The Benefits of dApps?
    • 1. Immutability
    • 2. Open-source
    • 2. Tamper-proof
    • 3. Transparency
    • 4. Availability
  • What are the Downsides of Using dApps?
    • 1. Immutability
    • 2. Transparency
    • 3. Scalability
  • What Are the Most Popular dApps Today?
    • 1. Polygon (MATIC)
    • 2. UniSwap
    • 3. Chainlink
    • 4. PancakeSwap
    • 5. Decentraland
    • 6. Terra (Luna)
    • 7. MakerDAO
  • The Disadvantages of DApps
    • 1. Unproven Security
    • 2. Not user-friendly
  • The Most Well-known DApps Hacks of 2021
    • 1. Cream Finance
    • 2. PAID Network
  • Conclusion

What Are The Benefits of dApps?

1. Immutability

Once everything is on the blockchain, nobody can change or edit it. Even governments or powerful individuals will have a tough time controling the entire network.

2. Open-source

Having an open-source network encourages developers to compete against one another by building better dApps that have more functions and usability.

2. Tamper-proof

Smart contracts that are published on the blockchain cannot be tempered – especially those with malicious intend – without alerting every other participant on the ecosystem.

3. Transparency

DApps using smart contracts are open for everyone to see and audit.

4. Availability

As long as the blockchain ecosystem, such as Cardano, Ethereum, and Solana networks are active, dApps built on them will remain live and active.

A Peer-to-peer system secures the network by ensuring that the dApp continues to work even when your computer is not working, you have no access to the internet, or part of the network is down.

You Might Also be Interested:
Interesting read: What are the Advantages and Benefits of DeFi in general

What are the Downsides of Using dApps?

As mentioned in my previous post regarding Flash Loan Attacks, DeFi is a double-edged sword.

The benefits of DeFi can easily be its biggest disadvantage.

Here’s why:

1. Immutability

Since smart contracts are written by humans, they can only be as good as the person who wrote them.

Humans are not perfect and mistakes are inevitable.

Immutable smart contracts that have flaws or were written poorly may compound into something larger that could potentially cause a financial catastrophe for everyone involved.

2. Transparency

Since smart contracts are totally transparent and openly auditable, hackers can take their time to find vulnerable code to exploit.

3. Scalability

The bandwidth of a dApp is limited to the blockchain it resides on.

Take a look at the ridiculous gas fees on the Ethereum network.

Ethereum gas fee is averaging at around $105 on 27 October 2021

In 2020, the gas fees were usually below $50 per transaction which is already considered incredibly expensive at that time.

A year later, the gas fee shot up to as high as $373 per transaction. That single transaction fee is equivalent to my one-month salary back when I was serving my national service.

What Are the Most Popular dApps Today?

1. Polygon (MATIC)

Click here to learn more about polygon

Previously known as Matic, Polygon is a protocol with a scaling solution that provides a framework for blockchains to improve network speed and stability while simultaneously reducing cost and network complexities.

Doing so provides flexibility and scalability of cryptographic tokens and other altcoins.


2. UniSwap

Click here to learn more about uniswap

Uniswap is the most popular DEX (decentralized exchange) on the Ethereum blockchain that allows users to swap ERC20 tokens.

Most cryptocurrencies trading happened on centralized exchanges that are governed by a single authority like Binance, Kraken, or Coinbase.

With DEXes, such as Uniswap, users can convert their ETH for other tokens without needing to trust a 3rd party or centralized authority.


3. Chainlink

Click here to learn more about Chainlink

Chainlink is a decentralized blockchain oracle with open-source technology that is currently being developed by a large community of developers and users.

It provides real-world data to smart contracts to allow protocols to make use of off-chain resources such as price data and external APIs.

In a nutshell, Chainlink is a network of nodes that provide real-world data and information from off-chain resources to on-chain (blockchain) smart contracts via oracles.


4. PancakeSwap

Click here to learn more about PancakeSwap

Like Uniswap, PancakeSwap is a decentralized exchange (DEX) that runs on the Binance Smart Chain (BSC) network.

Despite its kiddy name, PancakeSwap is by no means small. It has a huge community and userbase thanks to its massive liquidity and wide range of features.

At the time of writing this, PancakeSwap has over $257 million trading volume in a single day thus making it one of the most popular dApps of all time.


5. Decentraland

Click here to learn more about Decentraland

Decentraland is a virtual reality platform powered by blockchain technology on the Ethereum network.

It allows users to trade, buy, and sell digital assets such as NFTs and virtual plots of lands which can later be built upon and monetized in the game.

Buy, negotiate, and trade as many digital assets as you want. There is no limit to what you can do in this game.

Ultimately, Decentraland is the first decentralized virtual world that is completely owned by its users.


6. Terra (Luna)

Click here to learn more about Terra (LUNA)

Terra is the next-generation blockchain-based stablecoin that has its own reserve and is powered by its own LUNA coin.

It encourages users to hold their coins by allowing deposits to earn stable yield through their PoS (Proof-of-stake) system.

Furthermore, Terra offers stability and convenience by allowing instant transactions with incredibly low fees when conducting cross-border payments.


7. MakerDAO

Click here to learn more about MarkerDAO

MakerDAO is the creator of the popular USD-fixed token, DAI stablecoin that is built on the Ethereum blockchain.

It is a Decentralized Autonomous Organization that aims to offer lending and borrowing of cryptocurrencies through smart contracts to everyone without discrimination and an intermediary.


The Disadvantages of DApps

DApps is a huge game-changer that can solve many problems that regular apps cannot… Nevertheless, they have their disadvantages too.

1. Unproven Security

Since dApps are still in their early stages and are being run on smart contracts, no DeFi security has been proven as of yet.

Even with blockchain audits, hacks can happen.

The biggest disadvantage for dApps at this juncture would no doubt be vulnerable to hacks and exploitation.

2. Not user-friendly

Most decentralized applications have complicated settings or poor user interfaces which may put off complete beginners who are keen to explore the space.

It is like the early stages of e-commerce where users have a hard time looking for the catalog, contact us page, or ‘buy button.’

Just like everything, the good news is, dApps will improve with time.

The Most Well-known DApps Hacks of 2021

Hackers and scammers go to where the money is.

In the first quarter of 2021, dApps hacks and scams resulted in about US$86 million dollars which is 30 times more than exchange hacks.

Money lost to hackers (crypto) 2021 comparison. DApps, wallets, and exchanges
Image: AtlasVPN

1. Cream Finance

Fast forward to October 2021, lending protocol Cream Finance got hacked for the third time this year which resulted in a $130 Million loss in the latest flash loan attack.

Cream Finance 2021 Hacks
Click here to learn more about Cream Finance latest flash loan attack.

2. PAID Network

In March of 2021, PAID Network resulted in a loss of around $180 Million through an attack called ‘infinite mint.’

It caused rapid inflation of the token supply which led to an 85% drop in $PAID tokens value.

Many token holders and investors are calling this a rug pull instead of a hack.

A rug pull is definitely a possibility, however, the claims were made based on speculation with no proof.

PAID Network attack or rug pull?
Click here to learn more about the PAID Network exploit.

Conclusion

DApps can be use for a variety of things such as playing games, exchanging assets, voting, and fundraising.

If we want a more decentralized way of executing things, dApps is the future.

If you are new to DeFi, the first thing you can do is to protect your tokens by limiting token allowance on your wallet.

I have created a step-by-step guide on how to limit token access on Metamask, if you are keen, read it here.

The steps are similar to all other digital wallets.

Stay safe.

Filed Under: Learn Decentralized Finance (DeFi)

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Hey, I’m Jeremiah

I live by the philosophy of ‘appreciating what I have and investing the rest.’ I invest heavily in projects with real-use cases because I trust that the heart of RealFi is equality… I truly believe that everyone should be treated fairly regardless of race, religion, age, or nationality.

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