Mon Jul 30 2018

How do decentralized apps work?

Technology1335 views
How do decentralized apps work?

Bitcoin paved the way with its cryptographically stored ledger, scarce-asset model, and peer-to-peer technology. These features provide a starting point for building a new type of software called decentralized applications, or dapps. Dapps are just now gaining media coverage and it becomes more widely used than the world’s most popular web apps. The dapp space is currently an emerging field with a lot of people still experimenting with new models. Different developers have different opinions on what exactly a dapp is. So, through this article, let's get more information about the decentralized application and know how it works.

What is Decentralized application?

A decentralized application is run by many users on a decentralized network with trustless protocols. They are designed to avoid any single point of failure. They typically have tokens to reward users for providing computing power. DApps are built on top of and integrated with blockchain technology. Dapps are applications that run on a P2P network of computers rather than a single computer. Dapps connect users and providers directly. They are a type of software program designed to exist on the Internet in a way that is not controlled by any single entity.  BitTorrent, Popcorn Time, BitMessage, Tor, are all traditional dApps that run on a P2P network. Dapps have an unlimited number of participants on all sides of the market.

Operating under open-source license allows dApps to be open for innovation without restrictions of copyright or patent. Also, by being completely open-source, decentralized applications can operate under the legal model of open-source software. Bitcoin, for example, uses the MIT open-source software license.

How to create your own dapp?

  • Release a white paper that describes its features, goals, a mechanism for establishing consensus, and plans for tokenization.
  • Gain feedback from your community to make revisions.
  • Have a date for when your community can contribute to crowd-sale.
  • Distribute the tokens. This will vary depending on the mechanism that you use. Mining will require reference software; fundraising needs a digital wallet for stakeholders, and development uses a bounty system for suggestions.
  • Start executing your idea while still developing your plans.

Ethereum dApps

Ethereum intends to create a protocol for building decentralized applications. Ethereum provides developers with a foundational layer: a blockchain with a built-in Turing-complete programming language, allowing anyone to write smart contracts and decentralized applications where they can create their own arbitrary rules for ownership, transaction formats, and state transition functions. In general, there are three types of applications on top of Ethereum.

Financial applications - Providing users with more powerful ways of managing and entering into contracts using their money.

Semi-financial applications - Where money is involved, but there is also a heavy non-monetary side to what is being done.

Governance Applications - Such as online voting & decentralized governance that are not financial at all.

Applications of dapps

Token Systems

On-blockchain token systems have many applications ranging from sub-currencies representing assets such as USD or gold to company stocks, individual tokens representing smart property, secure unforgeable coupons, and even token systems with no ties to conventional value at all, used as point systems for incentivization.

Financial derivatives and Stable-Value Currencies

For example, a very desirable application is a smart contract that hedges against the volatility of ether with respect to the US dollar by using the data feed on, e.g., NASDAQ.

Identity & Reputation Systems

A contract stating the name of the owner of a land title can be added to the Ethereum network but not modified or removed. Anyone can register a name with some value, and that registration then sticks forever.

Decentralized File Storage

A Dropbox-like dApp where a smart contract splits the desired data up into blocks, encrypting each block for privacy, and builds a Merkle tree out of it, then the whole data gets distributed across the network

Decentralized Autonomous Organizations (DAOs)

A virtual entity that has a certain set of members or shareholders who, perhaps with a 67% majority, have the right to spend the entity’s funds and modify its code. The members would collectively decide on how the organization should allocate its resources.

Why should you choose Dapp technology?

  • This could make the Internet more secure, reliable, and private. Spreading small amounts of encrypted data across many computers makes it less hackable, less likely to be unavailable, and less exploitable.

  • Dapps (ideally) have no single point of failure – they can’t be taken down by a glitch, a hacker, a company, or a government.

  • They are much more flexible, trustless, and transparent than traditional apps. Decentralized open-source programs are guaranteed to run exactly as written since no single entity controls them.

How does it work?

A Dapp is one that connects the user directly with the application. Meaning, that Dapps cut out the middleman and removes some of the issues of trust and security. These are capable of being hosted by a Peer-to-peer network. More importantly, Dapps have entered vogue in a big way by using applications like cryptocurrencies and blockchain technology. Decentralised Applications can be defined in three distinct ways:

Apps that manage money - These have peer-to-peer transactions and a strong, decentralized network of active users

Apps where money is involved - These refer Dapps like insurance applications, where money is involved but not a direct element of the system.

Other Dapps - These include Dapps that do not involve money, these include applications such as medical or decentralized voting systems.

Let’s look at just a few examples of recent decentralized apps.


Popcorn Time uses the BitTorrent protocol to stream videos between users in real time, kind of like a Netflix for torrents. It is the worst nightmare of the Motion Picture Association of America (MPAA). No regulator can shut it down, and now everyone has access to free movies. Popcorn Time proved to be a useful dapp acting as a decentralized version of Netflix. The creators claim that it has been downloaded in every single country, even the two without the Internet. Popcorn Time uses no internal currency and doesn’t need a decentralized consensus, so it had no use for a blockchain. It simply streams movies and that proved to provide a lot of value.


Augur combines decentralized networking and financial prediction markets to create powerful forecasting. It’s built upon the Ethereum blockchain. In its current guise, Augur allows you to make predictions about real-world events not limited to financial markets. The platform turns your prediction into “shares” that other users can buy or sell.


OpenBazaar aims to be a decentralized version of eBay. No middleman can tell sellers what they can and can’t sell or decide on the fees for using the service. It’s built on the BitTorrent protocol, but the problem is that the sellers must host their own stores. They need to have their own server and leave it on in order for users to be able to see their items. Ideally, sellers could just upload their store data to the network, perhaps paying a small fee. This requires a decentralized system of incentivized storage miners. OpenBazaar uses BitTorrent’s protocol for data transfer and Bitcoin as currency for transactions between sellers.


Any user can share their computing power and earn Golem Network Tokens. The first Golem use case is for GCI rendering, enabling artists to process massive computationally intensive Blender and LuxRender scenes (both 3D creation suites). In the future, Golem will lend your idle computing power to machine learning projects, business analytics, and much more.


FireChat emerged with a famous use case - China’s infamous “Great Firewall” is notorious for blocking IP addresses for content that it deems pro-democracy or just not in its interest. The protesters feared the government would try to shut down access to various social networks to stop collaboration as is possible to do with the HTTP protocol. Instead, they used FireChat, an app that used a new feature in iOS 7 called multipeer connectivity makes it possible for phones to connect to each other directly without a third party. Because it had no central point of failure, the government would be forced to manually shut down every node, and thus the protestors were able to communicate with one another robustly.


Aragon is an extremely ambitious decentralized management platform, also built on the Ethereum blockchain. It wants to break down the traditional barriers that restrict the creation and maintenance of organizational structures. In other words, Aragon wants to make it easier to create private Decentralized Autonomous Organizations (DAOs), along with everything you need to succeed. The Aragon Network Token, ANT, allows users to directly participate in the operation and decision making the process for their network.


Lighthouse is a Bitcoin wallet embedded with a series of smart contracts. Lighthouse is a great example of using the existing Bitcoin infrastructure to build your dapp. It is just a UI with some Bitcoin smart contracts built in as a wallet. It works and it builds off Bitcoin’s existing user base. It has decentralized consensus, it’s open source, it has no central point of failure, but it doesn’t issue its own currency; rather, it uses Bitcoins. It’s a useful dapp but it’s not profitable for the creator.

SAFE Network

The SAFE Network uses a decentralized approach to protecting consumer data and private communication. SAFE, which stands for Secure Access For Everyone, uses peer-to-peer technology to share that computing power between connected users. This creates a secure private network, rather than relying on centralized servers. The SAFE Network ultimately wants to protect users from heavy-handed governments, censorship, data collection, criminals, and more. If you contribute your storage space and network capacity, you’ll earn MaidSafe, the SAFE Network token. In turn, you can trade this for Bitcoin.


Gems is a social messaging app that is trying to create a more fair business model than WhatsApp. Gems is issuing its own currency and letting advertisers pay users directly with it for their data rather than acting as the middleman who profits. Users can also earn gems by referring others to the network. Gems are a meta-coin built on Bitcoin that developers also receive for developing and maintaining the software. As the Gems user base grows, so does the value of the currency. Users are incentivized to grow the network and earn money just like the developers. You can think of Gems as shares in the dapp. Gems hasn’t open sourced its code, so users can’t verify if they truly have no central point of failure. It’s a profitable app.


Sia is a promising decentralized storage platform that leverages “underutilized hard drive capacity around the world,” creating a first-of-its-kind blockchain-based data storage marketplace. The platform turns those empty hard drives into cheap cloud storage that almost anyone can use. Prices are cheap, especially when compared to other major cloud storage providers.


Dapps are an exciting part of the larger cryptocurrency picture and may shape the future of the Internet itself. While most Dapps are still at the testing or research stage, they all have big ideas for disrupting the current system.

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