What is a dApp? – Definition and basics 2022

The abbreviation dApp stands for “decentralized application” or “decentralized application”.

In contrast to traditional applications, the individual components of a dApp are not located on a server or computer but in a peer-to-peer network. Usually, it is a blockchain.

In this article, we answer the following frequently asked questions about the dApp:

  • What is a dApp?
  • How do decentralized applications work?
  • Which are the most top dApps?

What is a dApp? – definition and explanation

The easiest way to explain a dApp is with an example: While “normal” apps, such as mobile phone apps such as WhatsApp, are operated, stored, managed, maintained and developed by a single provider, dApps are blockchain-based applications that operate in a peer-to-peer network.

Short definition: A decentralized application, or dApp for short, is a software application that is built on a decentralized peer-to-peer network. 

Therefore, the software of a dApp works in a decentralized and not centralized manner.

There are further definition criteria for dApps:

  • Open Source: dApps are based on open-source software. This is software with the freely accessible source text. The source text or code is written in a specific programming language and can be changed by any user.
  • Blockchain: dApps store data and source code on a decentralized blockchain. It follows that dApps are safe from central interference, as the data is stored on many different, networked computers.
  • Cryptography: dApps use cryptographically encrypted tokens. These are digital units representing a copy of a data set on a blockchain.
  • Creation of tokens: dApps use a mechanism to generate cryptographically encrypted tokens. These are used as rewards.
  • Deterministic: dApps can perform the same function regardless of their environment. With the necessary resources, a dApp can also perform any action.
  • Isolated: dApps run in a virtual environment. If a smart contract has an error, this does not restrict the functionality of the entire blockchain.

How do decentralized applications work?

With Ethereum came the first blockchain that was suitable for the development of dApps. The cornerstone is the smart contracts that can be used on the Ethereum blockchain. The code of a dApp can be created in any programming language and consists of these smart contracts stored on the decentralized blockchain.

In order to be able to describe the function of dApps, the underlying smart contracts must be discussed in more detail. Not every smart contract is automatically a dApp, because a “normal” smart contract does not allow any user interaction. A so-called front-end application is necessary for this.

The front-end code of a dApp can be created in any programming language and hardly differs from any other app. However, the backend code looks different because dApps consists of smart contracts.

User interaction is therefore only possible through the front-end application. These often require a browser extension that allows users to interact with the blockchain and manage the user identity.

Using the example of Ethereum, the functionality of dApps can be described as follows:

Ethereum uses the Ethereum Virtual Machine, EVM for short, which can simulate and execute any computer algorithm. The code in the backend of the EVM consists of smart contracts. Blockchain nodes carry out the calculations of the consensus algorithm that are necessary for the dApps to function. For this, the nodes or the users behind them receive rewards in the form of tokens.

A total of three types of dApps can be distinguished:

  • dApps with their own blockchain (e.g. Ethereum)
  • dApps that run on a third-party blockchain, such as that from Ethereum, but at the same time use their own tokens (e.g. Augur or Uniswap)
  • dApps that use an existing protocol, i.e. refer to an already running dApp (e.g. the SAFE Network on the Omni application)

In addition, the dApps can be differentiated according to their purpose. There are finance apps that provide users with tools to manage their finances. In the case of so-called partial finance apps, on the other hand, the purpose is not primarily for finance but for bonus and point systems. This includes, for example, gambling apps. The third category is non-finance-based apps. The focus here is on other non-financial services, such as personal identification, data storage or games.

Top 5 Ethereum dApps

There are numerous dApps with different functions. The most famous Ethereum dApps are described below.

Uniswap: The most Popular DeFi dApp on Ethereum

Uniswap is a fully decentralized protocol to ensure the automated provision of liquidity on Ethereum. The dApp can be used to exchange ERC-20 tokens on Ethereum.

Uniswap is the best-known decentralized exchange (DEX) on Ethereum.

Since dApp runs without intermediaries, trading is fast and efficient. The token of the dApp is called UNI.

MetaMask as a decentralized application

MetaMask is a crypto swap from Wallet & Gateway. The function of this dApp is to exchange tokens at any time directly from the desktop wallet or the mobile wallet. The swap function combines decentralized exchanges and market makers data to ensure that users get the best price with the lowest fees. The dApp works without the use of personal data. Data protection is a major advantage of this dApp.

MetaMask is the entry ticket to the area of decentralized finance.

OpenSea: NFTs for Ethereum

OpenSea is the first and largest peer-to-peer marketplace for crypto collectibles, such as game items or other virtual goods. OpenSea is the most popular marketplace for NFT . To be able to use the dApp, users need an Ethereum wallet.

SushiSwap: The further development of Uniswap

SushiSwap is the further development of Uniswap with the sushi token. The design of this dApp was adopted from Uniswap and expanded with practical functions. The basic function is the same: it is about liquidity provision. For this, users receive rewards in the form of sushi tokens. In contrast to Uniswap, the sushi tokens also entitle you to earn part of the protocol fee accumulated in sushi tokens, even if you no longer actively participate in the provision of liquidity. It is a question of the possibility of passive income.

Polygon Bridge: dApp for blockchains

Polygon Bridge is the dApp for storing and trading polygon between different networks. To use the dApp, a wallet must be available, such as Metamask, WalletConnect, or Coinbase Wallet.

Top 3 dApps on Solana

Other dApps do not run on the Ethereum blockchain but on Solana. The 3 best known are presented below.

Raydium: dApp with a central order book

Raydium is an on-chain order book. It is a so-called Automated Market Maker (AMM), enabling users to carry out a decentralized swap on Solana.

The AMM is based on the Solana blockchain, the central order book on the decentralized Serum exchange. The dApp aims to enable quick trades, shared liquidity, and the generation of returns.

While other AMM can only access the liquidity within their own pools and have no access to a central order book, or access would be associated with high fees, Raydium offers advantages in precisely these aspects. Thanks to the central order book, Raydium has access to the order flow and the liquidity of the entire serum network.

Magic Eden: NFT marketplace on Solana

Magic Eden is an NFT marketplace on the Solana blockchain. This dApp makes buying, selling, and trading with NFTs easier. There is no listing fee, the transaction fee is set very low at 2 percent. Payment is made with the token SOL.

Orca: DEX on Solana

Orca is a dApp for exchanging cryptocurrencies on the Solana blockchain. Transaction fees are minimal and users can provide liquidity to a trading pool to earn a share of the trading fees as rewards.

dApps for the Binance Smart Chain

The most important dApps on the Binance Smart Chain are presented below.

Pancake Swap: The most popular BSC DEX

Pancake Swap is a decentralized exchange on the Binance Smart Chain. An AMM enables users to exchange data decentrally on the BSC.

Pancake Swap is the uniswap counterpart for Binance. The native token is called $ CAKE.

1Inch: Cross-platform DEX aggregator

1Inch is a decentralized network for decentralized protocols. The original protocol of the 1Inch Network is a DEX aggregator solution that can crawl business across multiple sources of liquidity to provide better quotes to users. The protocol is based on the so-called Pathfinder algorithm, which finds the best paths between the various markets. This enables cost-efficient swaps across multiple sources of liquidity.

CryptoMines: Gaming dApp on the Binance Smart Chain

CryptoMines is a SciFi Play-to-Earn NFT game where users can collect workers and spaceships from traveling the universe looking for $ ETERNAL. This mineral enables users to “survive” one more day in the game and earn profits in the process.

Avalanche dApps

There are also dApps based on the Avalanche protocol. The best known are presented below.

Trader Joe: The largest dApp for Avalanche

Trader Joe is a decentralized one-stop trading platform on Avalanche. The dApp was initially started as DEX, but will soon also combine DeFi loans. The community operates the traded products. This makes it possible to return the fees incurred to the users. The token is called JOE.

AAVE: Cross-platform lending protocol

AAVE is a decentralized, open-source and not held in custody money market protocol. Depositors can earn interest by providing liquidity to the pool. On the other hand, Borrowers can obtain loans by using the pools. Payments earn interest in real-time.

However, AAVE is not only available on Avalanche but also on other blockchains such as Ethereum.

Pangolin Exchange: DEX on Avalanche

This dApp is a decentralized exchange for Avalanche and Ethereum assets to fast processing with low transaction fees at the same time. The dApp uses the same AMM as Uniswap and offers a token called PNG that is fully distributed by the community. The token can also be traded with all tokens issued on Ethereum.

Conclusion on decentralized applications

While the development of dApps is still in its infancy, it is believed that they will transform the crypto market by allowing users to participate in a blockchain-based social network. Cryptocurrencies are no longer in the foreground as such, but the purpose of the dApp, which runs with cryptocurrencies. DApps represent the next logical development stage for current apps and online services.

In the future, finance-based dApps and decentralized games in combination with the play-to-earn mechanism could gain in relevance.

Frequently asked questions (FAQ) about the functionality of dApps

This section provides answers to the most important questions about dApps.

How do dApps work?

dApps use a front-end application that is used to enable user interaction. Users can then interact with the blockchain. A decentralized application can be a stock exchange or a finance app.

Which dApps are there?

Depending on the functionality, there are dApps with their own blockchains, dApps that run on an existing blockchain, and dApps that use existing protocols. According to the intended use, there are finance apps, partial finance apps and non-finance apps. The best-known dApps are decentralized exchanges (DEX) or applications for lending money and credits, so-called lending protocols.

On which blockchain are dApps running?

The best-known blockchains for decentralized applications (dApps) are Ethereum, the Binance Smart Chain, Avalanche, and Solana. Ethereum is by far the most important platform for dApps.

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