Demystifying dApps

Previously in our “Invest in Knowledge” article, we have tried to help demystify some of the terminologies that encapsulate the world of Crypto. Given the abundance of information that is available I wanted to help set the record straight as to what is meant when individuals refer to “dApps”, the benefits of dApps and some of the real-world uses we are currently seeing.

What are dApps and P2P?

dApp is an abbreviation for decentralised application. Decentralisation is a building block theme in the world of crypto, so let us first clarify the term decentralise. According to the Cambridge Dictionary, to decentralise is “to move the control of an organization or government from a single place to several smaller onesSounds simple enough but, how can an application similar to that found on your phone not be owned by an individual or conglomerate?

The answer is because of P2P (Peer-to-Peer) communication networks. P2P networks occur when 2 or more computers are linked and can share resources without going through a centralised server. They can vary in size but, on a large scale, can create a backbone infrastructure for applications or services to run; making computers part of the network simultaneously the client and the server.

With numerous devices (nodes) making up the architecture, the system allocates to the devices which are most readily available at the point of the request to ensure complete and timely delivery. dApps don’t look any different on the front end to the applications on your phone but it is the P2P network architecture that is the inherent differentiating factor.

I’m hoping I’m not the only person that recalls the likes of Limewire, BitTorrent and Popcorn Time. These are great examples of some of the earliest of dApps which acted as file-sharing platforms. Although traditional dApps were not stored on a blockchain, many are now being put on blockchains through the use of smart contracts popularly referred to as “if, then” statements. The use of blockchain technology helps incentivise users to continue seeding files after download.

In 2014 David Johnston and Shawn Wilkinson sought to define the dApp and were able to define 4 key characteristics the dApps share:

  1.  A dApp must have open-source code and operate autonomously.
  2. All information and operation records must be stored cryptographically and publicly available.
  3. dApps must have a form of cryptographic token to enable access and reward contributions.
  4. The application must generate tokens in accordance with a uniform cryptographic algorithm such as proof-of-work or proof-of-stake.

Real-world uses of dApps:

File sharing – The classical example of a dApp. E.g BitTorrent and LimeWire.

Renting computing power – With numerous nodes connected to a blockchain they can be rented out to improve computing power.

Insurance – Utilising smart contracts could revolutionise the insurance industry. Imagine a farmer has a crop of corn (renowned for being susceptible to heatwaves), by using a smart contract linked to an Oracle, you could have an insurance contract whereby: “If the weather sustains a temperature of 40 degrees for 4 consecutive days then pay X farmer Y compensation”. The use cases go well beyond agriculture but, utilising Oracles which provide verified real-world data, will dramatically increase the speed at which compensation can be paid out.

Borrowing and Lending – Utilising smart contracts has enabled the borrowing and lending of significantly higher values of money which will only be executed should the parameters be met many firms are utilising this to profit from arbitrage.

Exchange – Allow for the swapping or exchange of tokens.

What are the benefits of dApps?

Security/privacy – The use of dApps safeguards users’ privacy as there is no such need to submit personal information due to smart contracts ensuring that once set in place the “then” section will be immediately executed upon completion of the “if” removing the need for assurances.

Attack resistant – the decentralised nature and deep level of encryption found on blockchains make malicious attacks on dApps extremely difficult.

Availability – Rather than relying on a single server which can have internal hardware, software and connectivity issues dApps utilise numerous nodes to ensure availability.

Fast and low-cost transactions – When used in a financial setting dApps allow for almost instantaneous transactions of funds and without third parties, the costs can be maintained to a minimum.

Shared computing power – nodes connected to a network can utilise each other in a joint effort to improve computing power.

📅 This Week in Crypto 📅

Software giant, Microsoft has made a $14.8 million investment in Wemade, a Korea-based blockchain gaming services company that has recently launched its own stablecoin, named Wemix. The company was part of a $46 million investment round, that also saw the participation of two more companies: Shinhan Asset Management and Kiwoom Securities.

A planned crypto wallet is reportedly on hold at Twitter after Elon Musk’s takeover of the company. Musk previously teased Dogecoin integration into Twitter and told employees that crypto payments would be a priority.

Ethereum (ETH) co-founder Vitalik Buterin continues to preach the crypto gospel, declaring that cryptocurrencies are a better option to store wealth and carry out transactions than gold. “Gold is incredibly inconvenient. It’s difficult to use, particularly when transacting with untrusted parties. It doesn’t support safe storage options like multisig. At this point, gold has less adoption than crypto, so crypto is the better bet,” the blockchain developer tweeted.