DApps & Web3: A new version of the Internet?

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What are dApps?

Decentralized applications, or DApps, are computer applications that are powered by smart contracts and stored on the blockchain. DApps were popularized by the Ethereum blockchain network. They are similar to traditional apps, but differ because:

Traditional storage databases are replaced by the blockchain.
Smart contracts are required for the application to interact with the blockchain.

DApps represent a new way of interacting with finance. When one thinks of traditional finance, money lending, borrowing, and banking functions are controlled and operated by centralized authorities. Banks and other financial institutions typically hold this centralized power, but DApps are disrupting and decentralizing this power.

History of DApps

While Bitcoin (BTC) was the first blockchain network, the technology has evolved much further than decentralized financial transactions and securely storing value. When Vitalik Buterin and his colleagues proposed Ethereum (ETH) in 2013, they thought of something much broader — a decentralized way of life.

Buterin envisioned a blockchain-based internet, one where users had control instead of corporations. To do so, Ethereum would power what are essentially automated if-then statements called smart contracts. These contracts are immutable, as rules and limitations were baked into their code. This means any party can transact without an intermediary, removing the need for centralized platforms.

Interestingly, in 2014 a paper was published defining the DApp, named “The General Theory of Decentralized Applications, DApps.” It was written by various authors including David Johnston and Sam Onat Yilmaz, and others all with knowledge and experience in the industry.

The paper defined DApps as entities with the following characteristics:

“The application must be completely open-source, it must operate autonomously, and with no entity controlling the majority of its tokens. The application may adapt its protocol in response to proposed improvements and market feedback but all changes must be decided by consensus of its users.”

“The application’s data and records of operation must be cryptographically stored in a public, decentralized blockchain in order to avoid any central points of failure.”

“The application must use a cryptographic token (bitcoin or a token native to its system) which is necessary for access to the application and any contribution of value from (miners / farmers) should be rewarded in the application’s tokens.”

“The application must generate tokens according to a standard cryptographic algorithm acting as a proof of the value nodes are contributing to the application (Bitcoin uses the Proof of Work Algorithm).”

From there, the paper classifies three “types” or “layers” of DApps based on the way users interact with them.

Type I decentralized applications have their own block chain. Bitcoin is the most famous example of a type I decentralized application but Litecoin and other “alt-coins” are of the same type.

Type II decentralized applications use the blockchain of a type I decentralized application. Type II decentralized applications are protocols and have tokens that are necessary for their function. The Omni Protocol is an example of a type II decentralized application.

Type III decentralized applications use the protocol of a type II decentralized application. Type III decentralized applications are protocols and have tokens that are necessary for their function. For example the SAFE Network that uses the Omni Protocol to issue ‘safecoins’ that can be used to acquire distributed file storage is an example of a type III decentralized application.

Put simply, the paper defines DApps as various applications that are powered by a core blockchain. Some build on top of the initial layer, but all are considered DApps if they meet the criteria mentioned above.

Why use a DApp?

Decentralization offers various benefits compared to apps running on a centralized network. Most important is the removal of third parties, replaced by innovative smart contracts. An app like Venmo allows one to send money to anyone, however the money passes through a centralized for profit company which can delay funds, cancel transactions, and ban users at will. Sometimes fees are required to move funds to and from a bank and can take days to arrive.

Sending money using decentralized apps costs less per transaction and settlement is almost instantaneous. This not only saves time but also transactions can’t be held up, delayed, reversed, or cancelled by a centralized authority. Once a transaction is initiated, it is then permanently written to the decentralized blockchain.

DApps don’t run on centralized servers and because there is no single point of failure, this makes DApps resilient to all kinds of attacks and hacking. Operating on a decentralized network eliminates sever downtime, making these applications always accessible.

Use Cases

DApps have use cases in many industries, such as gaming, healthcare, voting & governance, finance, digital ownership, file storage, compliance and much more. As a result, there are many companies who are building DApps on the blockchain to increase efficiency, improve process integrity, advance privacy, boost scalability and enhance security. Collectively, these decentralized applications are known as Web 3.0.

“Web 3 (sometimes stylized as web3) is an idea for a new iteration of the World Wide Web based on blockchain technology, which incorporates concepts such as decentralization and token-based economics.”

Web3

When the web started, it was full of information which anyone could access. Over time, large companies have harnessed and centralized it. While these organizations provide it for “free”, that comes at the cost of providing our data, which they then sell for profit. Companies have control over that information such as knowing what users like to buy, how much money they have and who they know. Centralization and control means they can censor, alter, ban users, etc.

Enter Web 3.0, where DApp usage doesn’t come at the cost of personal information or privacy. Instead, a user can choose to share only required information. For instance, say someone is getting medical checkup or applying for a loan, they choose who sees what information and for how long. Companies may pay for this access as well, ensuring that the users also profit from it. Interacting with DApps and Web3 requires less trust in big tech companies and more reliance on secure computer code.

What do you think? Is Web3 the next iteration of the internet? Will DApps become more popular than traditional applications? Please leave a comment.

-Wes

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