You know how your phone can actually have a bunch of different applications. There’s Facebook, Instagram, Gmail, youtube, etc. They’re basically all applications that run code that was created by the company so that you could interact with their company.
Well, a dapp or a decentralized application is very similar in how it works, except instead of reporting back to Facebook servers or Tiktok servers, This app reports back to the blockchain.
You’re simply interacting with the blockchain through the application.
Welcome the Shavuna, the number one website for crypto education. Here we explain topics of the cryptocurrency world using analogies, stories, and examples so that you can easily understand them.
In this blog post, I will explain precisely what a dapp or decentralized application is, how they work and why they might hold the key to the future of the technology.
The Benefits of Dapps
First, we’re going to go over some of the benefits of dapps, and then we’re going to cover the different types of them, including a bunch of specific examples.
The first thing you need to know is that dapps can only be built on smart contract networks. This means a blockchain like bitcoin cannot utilize dapps. Bitcoin was designed to only allow the sending of its native coin.
Ethereum can utilize something called smart contracts, which is code that makes up a program to be run to do more complicated things.
You should check out our article on smart contracts so that you’re not confused throughout this ost.
But in short, they allow two people to make an agreement written in code so that they don’t have to trust a third party to follow through. They can simply just trust the code.
Another benefit is that since the code is out there to be run, it is what we call open-source, which means anyone can look at the code.
This allows a lot more trust to be given to the application. We can’t really look at how Facebook recommends us, friends, to interact with or how google knows what we ate for dinner, but with any smart contract, we can actually look at the code and see how it works.
This is a significant benefit over centralized applications.
Next, dapps are also censorship-resistant, and this is a fancy way of saying they don’t have to answer to governments, corporations, or even specific people.
If the smart contract is coded to do something and it’s triggered, nobody can stop it naturally. This is good and bad. But it’s essential for financial applications. This way, nobody can control your money.
In history, governments that have done a lot of bad things have had the control of their citizen’s money. There have also been cases where Facebook or Twitter can actually ban or censor certain people based on their views or opinions.
A decentralized application will not allow this unless it’s written to.
Another significant benefit of decentralized applications is that they will essentially never go offline. Now there have been times where I’ve actually seen facebook or even youtube down. Maybe their servers have a bug, or there’s an outage, or they simply just do not work.
It’s usually for a concise period of time because there’s a lot of money involved, but technically the government could come in and just shut them down.
Since dapps run on the blockchain, they will actually never go down because hundreds of thousands of computers run them all around the world.
It would be infeasible to turn them all off. If not, it’s impossible.
Now that you know what makes dapps so cool let’s get into some examples of them.
Examples of Dapps
- Financial Dapps.
First off, let’s start off with financial dapps.
There are many decentralized applications that provide a way for people to invest in something called decentralized finance.
Decentralized finance or DEFI is a new monetary protocol that uses blockchain to allow investors to do new things and even some old things with their money with a ton of unique benefits.
Let’s go over some of the ways a dapp may use your money:
- Borrowing and Lending.
AAVE is a platform that allows a user to deposit their Ehereum or Matic tokens to certain smart Contracts. Whenever you deposit these coins and tokens, you can actually receive an interest rate on them, basically allowing you to invest with them.
AAVE also lets you borrow tokens.
Basically, if you have enough collateral already deposited without going too much in-depth, this allows you to borrow at different interest rates and even create specific margin positions.
If you want to learn more about AAVE, we’ve created a specific article on this topic.
- Providing Liquidity
So providing liquidity is a very complicated idea, but we’re going to make it simple.
In short, there is not much money in the tokens out there to trade, so investors can come along, buy these tokens and then invest them in what is called a liquidity pool which allows other people to trade back and forth using their tokens.
The traders pay a small fee that allows the investors to earn a return for their investment. It’s a win-win situation.
As I mentioned, allowing traders to find a way to buy and sell their tokens is one of the issues in the decentralized finance world.
Exchanges are decentralized applications that allow traders to take some of their tokens and trade them for another token.
Usually, with really low fees almost instantaneously and without needing any background checks or identification verification, that was a mouthful. What it means is that you can sell a million dollars of Ethereum without anyone blinking an eye or asking any questions.
By the way, these exchanges are actually called DEXs, which stands for decentralized exchange.
Next up on the menu, we have game dapps. Of course, there’s going to be games; I mean, programmers are the ones creating these dapps, so they’re going to find a way to gamify the space:
Cryptokitties is a decentralized application that allows you to buy these cute little kittens. Technically what you are buying is the NFT data of rights to that specific token that represents the kitty.
However, the fun part of this game is that you can actually collect a bunch of these kittens and even breed them to create more kittens.
In the community, the older generation kittens are usually the most valuable, and you can actually sell them for a profit or maybe sometimes a loss if you play the game long enough.
Even more so you can rent out your kitten to breed with someone else’s kitten as a strange form of passive income on the blockchain.
- Zed run
Zed is technically a gambling application since you buy NFTs representing racing horses and then race them.
Every horse has specific skills and a point system. Also, every race is recorded on the blockchain, so you can see all of the races, including the races your horses have won or lost in.
This game actually went viral for a while because it combined the psychological pulls of gambling with the virality of a blockchain game.
Just like zed is technically a gambling app. There is an absolutely massive list of blockchain gambling websites out there that are technically decentralized applications.
Some dapps allow you to play games like poker, slots, roulette, even simpler games like dice rolling or coin tossing.
In fact, you can actually code these applications so that the house always wins, even if it’s by one percent. But people love playing these games.
There are actually many applications out there that read smart contract data and information from the blockchain to display it to you.
Technically, these are decentralized applications, but they’re usually centralized and hosted on a single web server and, in most cases, don’t require the blockchain-specific code to work.
However, they read the blockchain data, so we thought they deserved a spot on this list.
So Zapper.fi is a website that collects information about wallets that you have and then displays it all on one page.
Not only will it look at all the significant dapps out there and find out how much money or coins you have, but it’ll also do it for many different networks as well.
Zapper.fi is one of my favorites because it’s free to use, and I can actually see a dashboard of my entire blockchain portfolio in one place.
Now, you should know there are many different applications like Zapper.fi, but we thought we’d share the one that we use.
Again, even though we put Cryptokitties in the game category, it deserves its spot in the marketplace category.
Cryptokitties have proven themselves an asset that people went crazy over in the last few years.
The price of some of these Cryptokitties has skyrocketed, and their dapps that allow you to buy and sell these NFT kitties are paving the ground for mass adoption.
Rarible and air NFTs are two marketplaces for other NFTs that allow you to buy, sell and even create new NFT art that you specifically can sell.
These platforms or applications facilitate the process and allow interaction with the blockchain so an everyday person can use it.
Bidali is a decentralized application that allows you to buy things using your crypto. One of their main products is basically gift cards which they can deliver anonymously and very quickly.
Remember, whenever you buy stuff with crypto in the united states, at least, it is currently reported as a sale, and because of that, you have to pay taxes.
Although Bidali does not report to the IRS, so the liability is in your hands. You may see what we’re saying here.
Anyways, before we get ourselves into trouble, let’s move on to the next category.
This is still an early announcement, but we are currently developing our website into a decentralized application where you can complete quizzes, read articles and gain XP through your Metamask wallet.
Once you have enough experience, you can then mint limited edition NFTs through our platform. If you’re interested, leave a comment if you want to be an early tester.
One last dap that doesn’t fit into any of these categories is something called ENS. ENS stands for Ethereum Name Service. A better alternative to ENS is Unstoppable Domains and we actually have an entire article explaining how it works.
In short, ENS turns those long Ethereum addresses into any address that you want.
For example, you can use your name John.eth. If you send any of your coins or tokens there, they’ll go to your wallet.
As I end this article, you need to know that the categories I listed are just the major ones.
I wanted to share this space is incredibly new, and there are new dapps being built every day. In fact, blockchain developers are one of the highest-paying jobs this year simply because there is so much money being poured into the space, and there’s a lack of people knowing how to code.
The sky’s the limit, and I genuinely believe this space has a lot of potential for positive growth. Maybe some of the best developers that will ever be may use our article as resources to learn and be inspired.
At least that’s our goal. Thank you guys so much for reading this blog post. I hope that you enjoyed it. I hope that you learned something and most of all as always, I hope to see you in the next article.