When Bitcoin was first introduced, no one expected the diverse applications that would come as a result of the blockchain. In 2015, the Ethereum blockchain would be released, introducing the world to a whole new way of transacting and creating communities online.
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What are dApps?
dApps, or decentralized applications, are a result of Ethereum’s technology and were brought to the forefront along with smart contracts. With these two technologies, ETH holders are able to diversify the way they conduct business online.
The way dApps work is by maintaining the decentralized aspect of the blockchain, meaning that these applications are open-sourced. This distributes the responsibility of maintaining the application as well as making sure that no single entity is in control of it.
To allow Ethereum’s developers to maintain the network, the Ethereum blockchain charges users for the gas used in each transaction.These gas prices, measured in gigawei (gwei) or nanoeth, aren’t fixed and can cost you as little as 21,000 gwei (for small transactions) up to 1,000,000 gwei (for more complicated transactions). Thankfully, Ethereum users can check when ETH gas prices are lowest to make the most of their transactions.
Working with Ethereum.org’s definition of dApps, these are the conditions that must be met for a program to be called a decentralized application.
Decentralized
As we mentioned before, dApps are decentralized by definition. This means that they should be open to the public and have no single authority controlling it.
Deterministic
dApps are meant to function regardless of the environment they are in.
Turing complete
dApps should work so long as long as the prerequisites and required resources are met.
Isolated
dApps aren’t programs that you can download. They operate on the Ethereum Virtual Machine, which helps isolate security issues and bugs affecting the main blockchain.
Types of dApps
It’s important to know that dApps are categorized by the different layers they reside in with each type of dApp fulfilling a different role. Type 1 dApps are those that provide the blockchain, type 2 will function on that blockchain, and type 3 will make use of both types 1 and 2 to operate.
Let’s break down each type.
Type 1
Type 1 dApps are applications that run on their own blockchain. You can think of this as the base layer and a good example of this type is Bitcoin, which is often called the first dApp.
Type 2
If Type 1 dApps are the base layer, picture Type 2 dApps as the layer that stacks on top of them. These dApps require utility tokens to work and will have these tokens available for users who want to participate. An example here would be the Omni Protocolwhich runs on the Bitcoin blockchain.
Type 3
Type 3 dApps are the top layer and require the protocol of an existing Type 2 dApp and similarly require tokens for user access.
An example is the Secure Access For Everyone (SAFE) Network. This network (Type 3) uses SafeCoins that are issued by the Omni Protocol (Type 2) and functions as a decentralized data storage network. The Omni Protocol, in turn, relies on the Bitcoin blockchain (Type 1) to operate.
What are dApps for?
Now that we understand how dApps work, let’s talk about what developers can make with dApps.
Wallets
Crypto wallets are one of the, if not the most, important tools to an investor or trader. Wallet dApps can either be custodial or non-custodial, giving users the option to choose. Custodial wallets mean that the platform stores your keys for you while non-custodial means that you are in total control of your wallet.
Decentralized exchanges
Decentralized exchanges, or DEXs as they’re most commonly known, are platforms where people can buy or sell Bitcoin and cryptocurrencies without a regulatory body monitoring them. These are the platforms where users can convert BTC to ETH or any other currency as long as it’s supported.
Games
Growing in popularity over the past few years, dApp video games have become a viable way for people to make money on the side. These games use non-fungible tokens (NFTs) as rewards that users can sell on the market.
The advantage of using dApps
We’ve discussed what they are and what we can use them for but one question remains—what makes dApps special? This time around, let’s talk about the different benefits you might expect from these applications.
Reliability
Because dApps work through the automation of smart contracts, users and developers can expect little to no downtime once the application is launched. Any smart contract used by the application is simply waiting for a user to interact with it. This also makes this approach highly resistant to denial-of-service attacks, which prevents applications and servers from doing their job.
Utility tokens
To help app developers, some dApps will require interested users to use utility tokens in order to access the dApps. These tokens allow users to make use of the in-app transactions and other features that might be featured on the dApp. This method helps the developers scale the application appropriately for better performance, development, and maintenance.
Open-sourced
As with many things on the blockchain, the source code for dApps is accessible by all users. This allows everyone participating in the blockchain to verify whether the application has any hidden agendas like malware or data theft.
Decentralized
There’s a good reason why people are focusing on the decentralized aspect of the blockchain. In this scenario, dApps are controlled by everyone involved. This means that any changes require the consensus of all interested parties and all transactions are verified by the whole network.
Making the most of what’s available
Despite being around for less than a decade, Ethereum’s blockchain has brought the community together with this diverse set of applications. It’s a whole new world out there and enthusiasts, both BTC and ETH, should be excited for what’s coming next.
For any investor or trader wanting to make sure they net a profit, it’s best if you can utilize what’s available. Participation is the surest way we can experience first-hand what’s happening. As long as you’ve done your research, the crypto community is ready for everyone to join.
