Decentralized application

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A decentralised application (DApp, [1] dApp, [2] Dapp, or dapp) is an application that can operate autonomously, typically through the use of smart contracts, that run on a decentralized computing, blockchain or other distributed ledger system. [3] Like traditional applications, DApps provide some function or utility to its users. However, unlike traditional applications, DApps operate without human intervention and are not owned by any one entity, rather DApps distribute tokens that represent ownership. [3] These tokens are distributed according to a programmed algorithm to the users of the system, diluting ownership and control of the DApp. Without any one entity controlling the system, the application is therefore decentralised.

Contents

Decentralised applications have been popularised by distributed ledger technologies (DLT), such as the Ethereum or Cardano blockchain, on which DApps are built, amongst other public blockchains. [4]

DApps are divided into numerous categories: exchanges, businesses, gambling, games, finance, development, storage, wallet, governance, property, identity, media, social, security, energy, insurance, health, etc. [5] [ clarification needed ]

Definition

There are a series of criteria that must be met in order for an application to be considered a DApp.

Traditional definitions of a decentralised application require a DApp to be open-source. That is, the application operates autonomously without a centralised entity in control of the majority of the application's associated tokens. [3] DApps also have a public, decentralised blockchain that is used by the application to keep a cryptographic record of data, including historical transactions. [3]

Although traditional DApps are typically open-source, DApps that are fully closed-source and partially closed-source have emerged as the cryptocurrency industry evolves. As of 2019, only 15.7% of DApps are fully open-source while 25% of DApps are closed source. In other words, the proportion of DApps with publicly available code is less than the proportion of Dapps without publicly available code. [5] DApps that are open-source generally have higher transaction volumes than closed-source DApps. [5]

Bitcoin, the first cryptocurrency, is an example of a DApp. [6]

Usage

DApps can be classified based on whether they operate on their own block chain, or whether they operate on the block chain of another DApp.

Smart contracts

Smart contracts are used by developers to maintain data on the block chain and to execute operations. [5] Multiple smart contracts can be developed for a single DApp to handle more complex operations. [5] Over 75% of DApps are supported by a single smart contract, with the remainder using multiple smart contracts. [5]

DApps incur gas, that is fees paid to the validators of the block chain, due to the cost of deploying and executing the DApp's smart contracts. [5] The amount of gas required of a DApp's functions is dependent on the complexity of its smart contracts. [5] A complex smart contract of a DApp that operates on the Ethereum blockchain may fail to be deployed if it costs too much gas, leading to lower throughput and longer wait times for execution. [5]

Operation

Consensus mechanisms are used by DApps to establish consensus on the network. The two most common mechanisms to establish consensus are proof-of-work (POW) and proof-of-stake (POS). [7]

Proof-of-work utilises computational power to establish consensus through the process of mining. [8] Bitcoin uses the proof-of-work mechanism. [8] Proof-of-stake is a consensus mechanism that supports DApps through validators that secure the network by having a stake and percent ownership over the application. [8]

A Bitcoin mining rig composed of dozens of graphics processing units Icarus Bitcoin Mining rig.jpg
A Bitcoin mining rig composed of dozens of graphics processing units

DApps distribute their tokens through three main mechanisms: mining, fund-raising and development. [7] In mining, tokens are distributed as per a predetermined algorithm as rewards to miners that secure the network through transaction verification. [7] Tokens can also be distributed through fundraising, whereby tokens are distributed in exchange for funding in the initial development phase of the DApp, as in an initial coin offering. [7] Lastly, the development mechanism distributes tokens that are set aside for the purpose of developing the DApp through a pre-determined schedule. [7]

There are three main steps that always occur in the formation and development of any DApp: the publishing of the DApp's whitepaper, the distribution of initial tokens, and the distribution of ownership. [7] Firstly, the whitepaper is published, describing the DApp's protocols, features and implementation. [7] Then, required software and scripts are made available to the miners and stakeholders that support the validation and fundraising of the network. [7] In exchange, they are rewarded with the initial tokens distributed by the system. [7] Lastly, as greater numbers of participants join the network, either through utilisation of the DApp or through contributions to the DApp's development, token ownership dilutes, and the system becomes less centralised. [7]

Characteristics

DApps have their backend code running on a decentralized peer-to-peer network, as opposed to typical applications where the backend code is running on centralized servers. A DApp can have frontend code and user interfaces written in any language that can make calls to its backend.

DApps have been utilized in decentralized finance (DeFi), in which dapps perform financial functions on blockchains. [9] Decentralized finance protocols validating peer-to-peer transactions, such as Aave Protocol, are expected to disrupt centralized finance and lower costs. [10]

The performance of a DApp is tied to its latency, throughput, and sequential performance. [11] Bitcoin's system for transaction validation is designed so that the average time for a block on bitcoin's blockchain to be mined is 10 minutes. [11] Ethereum offers a reduced latency of one mined block every 12 seconds on average (called Block Time). For comparison, Visa handles approximately 10,000 transactions per second. [11] [12] More recent DApp projects, such as Solana, have attempted to exceed that rate. [13]

Internet connectivity is a core dependency of blockchain systems, which includes DApps. [11] High monetary costs also act as a barrier. Transactions of small monetary values can comprises a large proportion of the transferred amount. [11] Greater demand for the service also leads to increased fees due to increased network traffic. [14] This is an issue for Ethereum, which is attributed to increased network traffic caused by DApps built on the Ethereum blockchain, such as those used by Non-fungible tokens (NFTs). [14] Transaction fees are affected by the complexity of a DApp's smart contracts, and by the particular blockchain. [5]

Ethereum is the distributed ledger technology (DLT) that has the largest DApp market. [5] The first DApp on the Ethereum blockchain was published on April 22, 2016. [5] From May 2017, the number of DApps being developed have grown at a higher rate. [5] After February 2018, DApps have been published every day. [5] Less than one fifth of DApps capture almost all the DApp users on the Ethereum blockchain. [5] About 5% of DApps capture 80% of Ethereum transactions. [5] 80% of DApps on Ethereum are used by less than 1000 users. [5] On Ethereum, DApps that are exchanges capture 61.5% of transaction volume, finance DApps capture 25.6%, gambling DApps capture 5%, high-risk DApps capture 4.1%, and games capture 2.5%. [5]

DApps have not achieved wide adoption. Potential users may not have the skill or knowledge to be able to effectively analyse the differences between DApps and traditional applications, and also may not value those differences. This skill and information can be difficult to access for mainstream users. Additionally, the user experience for DApps is often poor, as they are often developed to prioritize functionality, maintenance and stability. [15]

Many DApps struggle to attract users, particularly in their founding stages, and even those that attract widespread initial popularity struggle to retain it.[ full citation needed ]

A notable example was the DApp CryptoKitties , which heavily slowed down the Ethereum network at the height of its popularity. [16] CryptoKitties and another similar gaming-based DApp Dice Games have failed to attract similar traction since. [17] [ needs update ]

Examples

Related Research Articles

A smart contract is a computer program or a transaction protocol that is intended to automatically execute, control or document events and actions according to the terms of a contract or an agreement. The objectives of smart contracts are the reduction of need for trusted intermediators, arbitration costs, and fraud losses, as well as the reduction of malicious and accidental exceptions. Smart contracts are commonly associated with cryptocurrencies, and the smart contracts introduced by Ethereum are generally considered a fundamental building block for decentralized finance (DeFi) and non-fungible token (NFT) applications.

<span class="mw-page-title-main">Cryptocurrency</span> Digital currency not reliant on a central authority

A cryptocurrency, crypto-currency, or crypto is a digital currency designed to work through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it.

Proof-of-stake (PoS) protocols are a class of consensus mechanisms for blockchains that work by selecting validators in proportion to their quantity of holdings in the associated cryptocurrency. This is done to avoid the computational cost of proof-of-work (POW) schemes. The first functioning use of PoS for cryptocurrency was Peercoin in 2012, although the scheme, on the surface, still resembled a POW.

<span class="mw-page-title-main">Ethereum</span> Open-source blockchain computing platform

Ethereum is a decentralized blockchain with smart contract functionality. Ether is the native cryptocurrency of the platform. Among cryptocurrencies, ether is second only to bitcoin in market capitalization. It is open-source software.

A decentralized autonomous organization (DAO), sometimes called a decentralized autonomous corporation (DAC), is an organization managed in whole or in part by decentralized computer program, with voting and finances handled through a blockchain. In general terms, DAOs are member-owned communities without centralized leadership. The precise legal status of this type of business organization is unclear.

A blockchain is a distributed ledger with growing lists of records (blocks) that are securely linked together via cryptographic hashes. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. Since each block contains information about the previous block, they effectively form a chain, with each additional block linking to the ones before it. Consequently, blockchain transactions are irreversible in that, once they are recorded, the data in any given block cannot be altered retroactively without altering all subsequent blocks.

A distributed ledger is a system whereby replicated, shared, and synchronized digital data is geographically spread (distributed) across many sites, countries, or institutions. In contrast to a centralized database, a distributed ledger does not require a central administrator, and consequently does not have a single (central) point-of-failure.

<span class="mw-page-title-main">Ethereum Classic</span> Blockchain computing platform

Ethereum Classic is a blockchain-based distributed computing platform that offers smart contract (scripting) functionality. It is open source and supports a modified version of Nakamoto consensus via transaction-based state transitions executed on a public Ethereum Virtual Machine (EVM).

<span class="mw-page-title-main">Cardano (blockchain platform)</span> Public blockchain platform

Cardano is a public blockchain platform. It is open-source and decentralized, with consensus achieved using proof of stake. It can facilitate peer-to-peer transactions with its internal cryptocurrency, ADA.

A cryptocurrency wallet is a device, physical medium, program or an online service which stores the public and/or private keys for cryptocurrency transactions. In addition to this basic function of storing the keys, a cryptocurrency wallet more often offers the functionality of encrypting and/or signing information. Signing can for example result in executing a smart contract, a cryptocurrency transaction, identification, or legally signing a 'document'.

A blockchain is a shared database that records transactions between two parties in an immutable ledger. Blockchain documents and confirms pseudonymous ownership of all transactions in a verifiable and sustainable way. After a transaction is validated and cryptographically verified by other participants or nodes in the network, it is made into a "block" on the blockchain. A block contains information about the time the transaction occurred, previous transactions, and details about the transaction. Once recorded as a block, transactions are ordered chronologically and cannot be altered. This technology rose to popularity after the creation of Bitcoin, the first application of blockchain technology, which has since catalyzed other cryptocurrencies and applications.

<span class="mw-page-title-main">Tron (blockchain)</span> Blockchain computing platform

Tron is a decentralized, proof-of-stake blockchain with smart contract functionality. The cryptocurrency native to the blockchain is known as Tronix (TRX). It was founded in March 2014 by Justin Sun and since 2017 has been overseen and supervised by the TRON Foundation, a non-profit organization in Singapore, established in the same year. It is open-source software.

Decentralized finance provides financial instruments and services through smart contracts on a programmable, permissionless blockchain. This approach reduces the need for intermediaries such as brokerages, exchanges, or banks. DeFi platforms enable users to lend or borrow funds, speculate on asset price movements using derivatives, trade cryptocurrencies, insure against risks, and earn interest in savings-like accounts. The DeFi ecosystem is built on a layered architecture and highly composable building blocks. While some applications offer high interest rates, they carry high risks. Coding errors and hacks are a common challenge in DeFi.

<span class="mw-page-title-main">MetaMask</span> Software cryptocurrency wallet

MetaMask is a software cryptocurrency wallet used to interact with the Ethereum blockchain. It allows users to access their Ethereum wallet through a browser extension or mobile app, which can then be used to interact with decentralized applications. MetaMask is developed by Consensys, a blockchain software company focusing on Ethereum-based tools and infrastructure.

<span class="mw-page-title-main">Uniswap</span> Decentralized cryptocurrency exchange

Uniswap is a decentralized cryptocurrency exchange that uses a set of smart contracts to create liquidity pools for the execution of trades. It is an open source project and falls into the category of a DeFi product because it uses smart contracts to facilitate trades instead of a centralized exchange. The protocol facilitates automated transactions between cryptocurrency tokens on the Ethereum blockchain through the use of smart contracts. As of October 2020, Uniswap was estimated to be the largest decentralized exchange and the fourth-largest cryptocurrency exchange overall by daily trading volume.

<span class="mw-page-title-main">0x (decentralized exchange infrastructure)</span> Cryptocurrency

0x is an open-source, decentralized exchange infrastructure that enables the exchange of tokenized assets on multiple blockchains. Developers can use 0x to incorporate exchange functionality into their applications, and market makers can use 0x to create markets for cryptocurrencies and tokens. ZRX, an Ethereum ERC-20 token, is the native governance and staking token of 0x. Individuals who own ZRX can vote on protocol changes and stake their tokens to earn liquidity rewards in Ether (ETH). The project's creator and core developer is 0x Labs.

Stacks, formerly Blockstack, is a layer-2 blockchain that extends the use of Bitcoin to include smart contracts, decentralized finance ("DeFi"), non-fungible tokens (NFTs), and decentralized apps ("DApps"), while still maintaining Bitcoin finality. Stacks, like the Lightning Network, Merlin Chain, Rootstock Infrastructure Framework (RIF) and Dovi, is aimed at improving the functionality of Bitcoin.

<span class="mw-page-title-main">Solana (blockchain platform)</span> Public blockchain platform

Solana is a blockchain platform which uses a proof-of-stake mechanism to provide smart contract functionality. Its native cryptocurrency is SOL.

ICON is a decentralized, open-source blockchain with smart contract functionality. ICX is the native cryptocurrency of the platform.

Nervos Network is a proof-of-work blockchain platform which consists of multiple blockchain layers that are designed for different functions. The native cryptocurrency of this layer is called CKB. Smart contracts and decentralized applications can be deployed on the Nervos blockchain. The Nervos Network was founded in 2018.

References

  1. ↑ "CVC Money Transmission Services Provided Through Decentralized Applications (DApps)" (PDF). FinCEN. Retrieved 2019-05-09.
  2. ↑ "IEEE DAPPS 2020". ieeedapps.net. Archived from the original on 2020-04-26. Retrieved 2020-08-15.
  3. 1 2 3 4 Andoni, Merlinda; Robu, Valentin; Flynn, David; Abram, Simone; Geach, Dale; Jenkins, David; McCallum, Peter; Peacock, Andrew (2019-02-01). "Blockchain technology in the energy sector: A systematic review of challenges and opportunities". Renewable and Sustainable Energy Reviews. 100: 143–174. doi: 10.1016/j.rser.2018.10.014 . ISSN   1364-0321. S2CID   116422191.
  4. ↑ Popper, Nathaniel (1 October 2017). "Understanding Ethereum, Bitcoin's Virtual Cousin (Published 2017)". The New York Times.
  5. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Wu, Kaidong; Ma, Yun; Huang, Gang; Liu, Xuanzhe (2021). "A first look at blockchain-based decentralized applications". Software: Practice and Experience. 51 (10): 2033–2050. arXiv: 1909.00939 . doi:10.1002/spe.2751. ISSN   1097-024X. S2CID   202541736.
  6. ↑ "Where did Bitcoins come from". The Times of India. August 17, 2021. Retrieved 2022-08-06.
  7. 1 2 3 4 5 6 7 8 9 10 Johnston, D., Yilmaz, S. O., Kandah, J., Bentenitis, N., Hashemi, F., Gross, R., ... & Mason, S. (2014). The General Theory of Decentralized Applications, DApps.
  8. 1 2 3 Hazari, Shihab S.; Mahmoud, Qusay H. (2019). "Comparative evaluation of consensus mechanisms in cryptocurrencies". Internet Technology Letters. 2 (3): e100. doi: 10.1002/itl2.100 . ISSN   2476-1508. S2CID   169801236.
  9. ↑ "Why 'DeFi' Utopia Would Be Finance Without Financiers: QuickTake". Bloomberg.com. 26 August 2020.
  10. ↑ Ao, Ziqiao; Horvath, Gergely; Zhang, Luyao (June 2022). "Are decentralized finance really decentralized? A social network analysis of the Aave protocol on the Ethereum blockchain". Papers.
  11. 1 2 3 4 5 6 7 Cai, Wei; Wang, Zehua; Ernst, Jason B.; Hong, Zhen; Feng, Chen; Leung, Victor C. M. (2018). "Decentralized Applications: The Blockchain-Empowered Software System". IEEE Access. 6: 53019–53033. arXiv: 1810.05365 . doi: 10.1109/ACCESS.2018.2870644 . ISSN   2169-3536.
  12. ↑ Lee, Timothy (2013). "Bitcoin needs to scale by a factor of 1000 to compete with Visa. Here's how to do it: The Bitcoin network can only handle 7 transactions per second. Visa can handle 10,000". The Washington Post.
  13. ↑ Prabhjote, Gill (15 September 2021). "It's DeFi season and things got a little too hot to handle for Solana and Arbitrum One as transaction volumes ballooned". Business Insider India. Retrieved 2 December 2021.
  14. 1 2 Donmez, Anil; Karaivanov, Alexander (2022). "Transaction fee economics in the Ethereum blockchain". Economic Inquiry. 60: 265–292. doi:10.1111/ecin.13025. S2CID   244232599.
  15. ↑ Glomann, Leonhard; Schmid, Maximilian; Kitajewa, Nika (2020). "Improving the Blockchain User Experience - an Approach to Address Blockchain Mass Adoption Issues from a Human-Centred Perspective". In Ahram, Tareq (ed.). Advances in Artificial Intelligence, Software and Systems Engineering. Advances in Intelligent Systems and Computing. Vol. 965. Cham: Springer International Publishing. pp. 608–616. doi:10.1007/978-3-030-20454-9_60. ISBN   978-3-030-20454-9. S2CID   198325323.
  16. ↑ "People have spent over $1M buying virtual cats on the Ethereum blockchain". 3 December 2017.
  17. ↑ Vigna, Paul (29 May 2019). "CryptoKitties and Dice Games Fail to Lure Users to Dapps". Wall Street Journal.
  18. ↑ Leising, Matthew (July 26, 2018). "As Crypto Meets Prediction Markets, Regulators Take Notice". Bloomberg.
  19. ↑ Kharif, Olga (2017-12-05). "CryptoKitties Mania Overwhelms Ethereum Network's Processing". Bloomberg. Retrieved 2018-08-23.
  20. ↑ Corbyn, Zoë (2018-09-08). "Decentralisation: the next big step for the world wide web". The Observer. ISSN   0029-7712 . Retrieved 2019-10-06.
  21. ↑ "DeFi Boom Makes Uniswap Most Sought-After Crypto Exchange". Bloomberg.com. 16 October 2020.
  22. ↑ Bhattacharjee, Shomik Sen (October 8, 2021). "Session Is a Blockchain-Based Private Messenger That Uses Decentralised Server Nodes To Ensure Anonymity". Gadgets360. NDTV. Archived from the original on June 18, 2023. Retrieved June 18, 2023.
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