What Are Decentralized Applications (dApps)?
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The term dApps refers to decentralized applications, meaning applications that run without a centralized server or individual computer. While this guide focuses on decentralized applications that run on blockchain networks, the concept predates today’s leading blockchains. Both BitTorrent and The Onion Router (TOR) are early examples of decentralized apps.
John Gage of Sun Microsystems coined the slogan, “The network is the computer,” in the mid-1980s. That prophetic tagline aptly describes the world of decentralized applications, computer programs that run on blockchain networks. Decades later, when Ethereum launched in 2015, the project adopted the nickname “The World Computer,” describing Ethereum’s ability to host applications on its worldwide, decentralized network.
Ethereum introduced the world to smart contracts on a broad scale. These smart contracts act as conditional switches. If this happens, then do that. Smart contracts can act on information from within the network or, through the use of oracles, act upon data from outside the network. Smart contracts can also interact with other smart contracts to create powerful decentralized applications ranging from decentralized finance (DeFi) to web3 gaming, social media, and much more.
How Do dApps Work?
Decentralized applications run on a network rather than on an individual computer or centralized server. dApps on blockchain networks, such as the Ethereum Network, run on the blockchain network itself. To use Ethereum as an illustration, Ethereum dApps run on the Ethereum Virtual Machine, a sandboxed layer of the Ethereum network that allows applications to execute functions separate from the network’s validation functions.
Smart contracts form the heart of dApps, which typically use several smart contracts that work together, each supporting a different function. The user interface looks like an app or website we might see with common web apps but allows users to connect a crypto wallet to interact with the dApp.
This access is available through any compatible crypto wallet, making dApps permissionless and pseudonymous in usage. Your wallet address becomes your ID within the app, and no one can block access to the dApp. However, some projects may block access to the UI based on region and restrictions or regulatory uncertainty in a specific country. Nonetheless, these smart contracts can still be accessed through third-party dApps (if available), yield aggregators, or dApps written by users or communities themselves to interact with target apps.
Often, dApps also offer decentralized hosting for UI features, leveraging platforms like the Interplanetary File System (IPFS), which distributes and decentralizes UI elements through users themselves. This technique also uses a network rather than a single server as a host.
Lastly, decentralized apps are typically open-source, meaning that anyone can review the code for smart contracts.
In a later section, we’ll discuss the basic tools needed to use decentralized applications.
Brief History of dApps
Although Bitcoin was the first cryptocurrency to reach meaningful adoption, and the Bitcoin network supports smart contracts, its support for smart contracts is limited compared to newer networks. These limitations led to the development of the Ethereum project. Ethereum introduced a Turing-complete programming language called Solidity, allowing developers to build powerful applications that run on the Ethereum Virtual Machine.
Since Ethereum’s launch in 2015, countless new blockchains have launched with support for smart contracts. However, most dApp development centers on a smaller group of chains.
dApps Timeline
- 1994 – Smart Contracts: The term and ideation of smart contracts date back to at least 1994, when Nick Szabo published a paper describing the concept. Nick Szabo later went on to discuss the concept of Bit Gold, which many see as a precursor to Bitcoin. Many also speculate that Nick Szabo is Satoshi, Bitcoin’s anonymous creator.
- 2014 Ethereum Whitepaper: Vitalik Buterin, a co-founder of Ethereum, published the Ethereum Whitepaper in 2014, “A Next-Generation Smart Contract and Decentralized Application Platform.” The paper discussed Ethereum’s proposed structure and how it would expand upon Bitcoin’s limited support for smart contracts.
- 2014 – dApp Paper Published: In 2014, a group of eight authors, including David Johnston, who coined the term dApp in 2013, published a paper on decentralized applications. The paper laid a foundation for dApps and suggested that even Bitcoin itself is a dApp.
- 2015—Ethereum Launch: Ethereum’s 2015 launch heralded the beginning of a new era for blockchain. With the introduction of a more powerful programming language, blockchains became viable tools for running applications ranging from decentralized finance to gaming, voting, social media, AI, and much more.
- 2017 Etheroll: Much like the internet’s early beginnings, vices led to a larger adoption of blockchain apps. Etheroll launched the first dApp in 2017 as a decentralized gambling application.
- 2017 Aave: Initially launched as ETHLend, Aave later rebranded and remains a popular lending and borrowing platform. Aave is now the third-largest dApp protocol by total value locked (TVL).
- 2017 CryptoKitties: Famous for “breaking Ethereum” due to its popularity, the CryptoKitties NFT game took the blockchain by storm, launching the world of web3 gaming. The game’s popularity led to the development of Layer 2 blockchains that offer better scalability and lower transaction fees.
- 2018 Uniswap: The world’s largest decentralized exchange (DEX) app launched in 2018, giving users a reliable way to swap assets or provide liquidity to earn crypto passive income.
- 2020 Solana Launch: While dozens of promising blockchains now offer dApps, Solana earns a place in the timeline due to its wider adoption and booming dApp ecosystem. Users flocked to the chain as a refuge from Ethereum’s higher gas fees.
Common Types of dApps with Examples
The range of decentralized apps is limited only by developers’ imagination and the community’s adoption. Programming languages like Solidity (Ethereum), Haskell (Cardano), and Rust (Solana) provide powerful tools to build applications in limitless categories. Let’s explore some of the most common types of dApps.
Finance (DeFi)
Decentralized Finance embodies the ethos of blockchain: permissionless access and censorship resistance. Some of the most popular dApps, like Uniswap, Aave, and Compound, allow people to lend, borrow, and swap tokens without a centralized intermediary. Instead, smart contracts enable these financial transactions, with users connecting to dApps by using a crypto wallet.
- Uniswap: The Uniswap protocol has become the leading decentralized exchange across all chains and has been deployed on 21 separate blockchain networks. The Uninswap dApp enables token swaps using liquidity pools provided by users who earn trading fees. As of this writing, 24-hour fees earned by Uniswap pools top $2.25 million based on $5.97 billion in TVL. As a well-tested open-source application, countless forks of Uniswap serve smaller markets.
- Aave: The Aave lending and borrowing platform now supports 12 blockchains and boasts more than $13 billion in TVL across all chains.
- Compound: Although smaller than Aave in token selection and deployments, the Compound Finance lending platform services a market focused on safety.
Yield aggregator dApps such as Beefy Finance and Yearn Finance also provide easy access to DeFi protocols, including the leading protocols above and many smaller apps.
Gaming
Global gaming revenue topped $347 billion in 2022, with further growth expected. However, traditional revenue models center on memberships and in-game purchases. These in-game assets remain trapped within the game, with no way to recoup the purchase if gamers move on to the next game. Web3 gaming dApps change that model by providing ways to earn within the game and monetize in-game assets.
- Axie Infinity: As one of the most popular NFT games of all time, Axie Infinity brings Pokemon-like playability to the blockchain. However, unlike Pokemon Go and similar games, Axie Infinity allows users to buy and sell “Axies,” the magical creatures bred in the game.
- Decentraland: As one of the first blockchain-based metaverse games, Decentraland paved the way for on-chain asset ownership within games, including real estate. Players can also earn tokens through in-game events.
Voting and Governance
Vitalik Buterin’s Ethereum Whitepaper referred to DAOs, decentralized autonomous organizations, as one of the possible uses for the Ethereum blockchain. Not long after launch, The DAO launched, leading the way for decentralized governance with on-chain voting. Now, decentralized projects from every corner of the market utilize DAOs.
- Aragon: Projects like Aragon provide customizable or ready-made DAO governance platforms without coding. Both Arbitrum and Base, two leading Ethereum Layer 2 networks, utilize Aragon integration. Leading dApps like Lido, Decentraland, and Curve are governed on Aragon’s platform.
Digital Identity
Both large companies and startup projects are turning to blockchain technology to manage digital identities and credentials.
- IBM: Once best known for its computers, IBM is now a global leader in technology solutions with several blockchain-based initiatives. A detailed report from IBM discusses the advantages of using distributed ledger technology and signing keys over traditional methods of ID verification, reducing dependence on third parties and streamlining industries like healthcare.
- Accenture: Other forward-looking companies like Accenture are turning to blockchain technology to connect physical IDs to blockchain-based digital IDs.
Decentralized Marketplaces
While mainly focused on NFT collections such as Pudgy Penguins or Bored Ape Yacht Club non-fungible tokens, dApp platforms like OpenSea and Blur are paving the way for the future that could see a much wider variety of NFTs, possibly including real-world assets like real estate and much more. Decentralized digital art marketplaces started the craze. The move to tokenized real-world assets will bring a new wave of decentralized markets where users can buy, sell, and swap nearly anything.
Social Media
Platforms like X and Facebook dominate the social media landscape. However, using these platforms comes with a privacy cost. Centralized providers also control the discussion, banning or restricting users based on cumbersome terms of use and sometimes heavy-handed moderation.
Web3 social media dApps like Warpcast allow users to connect via a crypto wallet and even earn tokens in a tip-based economy. Access through a wallet ensures ownership of your identity, unlike legacy platforms that can ban users at will, effectively erasing their online identity.
Centralized Apps vs. Decentralized Apps
Centralized apps run on a single server or network of centralized servers controlled by a single entity.
For example, Facebook controls user interactions, the UI, and access to the platform. By contrast, decentralized apps run on the blockchain and typically utilize decentralized governance and decentralized networks of servers. Users control their identity and the assets their wallet holds within the dApp.
Access to dApps is unrestricted, regardless of location or any other characteristic. Instead, your wallet address becomes your pseudonymous identity to connect to the app. You verify ownership of your wallet address by signing transactions with a crypto wallet app.
While the industry works to streamline the user experience, one primary draw of decentralized applications is their permissionless nature. No one can restrict your access, making dApps available to everyone. Although most blockchain transactions are public, you own your pseudonymous identity and can use different IDs for different purposes. By contrast, a corporation or business owns your online identity in the centralized world, tracking your activity or restricting access at a whim.
Pros of dApps
Decentralized apps offer several advantages over traditional centralized applications. Privacy, data ownership, and transparency are among the most compelling reasons many prefer dApps.
1. No Central Authority
The lack of a centralized authority and decentralized governance make dApps a truly democratic ecosystem. However, governance typically relies on token-based voting rather than one person, one vote, giving those with more tokens a louder voice in governance. Still, access is open to anyone and cannot be restricted or censored due to the decentralized nature of the network.
2. Transparency with Open Source
Nearly all dApps are open-sourced. This allows the community to review the code and decide whether to use the app based on its functionality. Closed-source apps leave users in the dark or require detective skills to discover what the application is doing behind closed doors and what information it’s logging or sharing.
The open-source nature of dApps also allows auditing firms to evaluate the code for bugs, malicious code, or potential exploits.
3. Token Rewards
Many dApps offer token rewards, allowing users to earn tokens in a variety of ways. For example, users who lend on Compound Finance can earn COMP tokens in addition to an interest rate paid in the lending token. Similarly, the Pendle dApp pays liquidity providers swap fees for the pool, PENDLE incentives, and protocol incentives paid in third-party tokens like AAVE or COMP in many cases.
Drawbacks of dApps
Decentralized applications also bring some drawbacks, such as bugs or other vulnerabilities. They also come with a learning curve.
1. Smart Contract Vulnerabilities
Halfway through 2024, nearly a half billion dollars has been lost to hacks and crypto rug pulls. By comparison, bank fraud losses topped $10 billion in the US in 2023. However, crypto markets represent a small fraction of the market share enjoyed by traditional financial institutions.
Before interacting with a dApp, research its audit history as well as any additional risks that may result from using the app, such as slippage or impermanent loss. More on that in a bit.
2. Complexity to Use
Many popular decentralized applications offer a simple user interface and easy-to-understand functionality. However, some use very sophisticated algorithms or complex interfaces that make them difficult to use or invite mistakes.
As a beginner, it’s often wiser to use decentralized apps that are easy to understand and move to more complex applications as you learn more about the crypto ecosystem.
3. Scalability Issues
More complex dApps can place a burden on the network, resulting in higher transaction costs for interacting with these smart contracts. Ethereum is working on several scaling solutions for both its Mainnet network and Layer 2 chains that promise to improve speed and reduce transaction costs. However, many decentralized applications found on Mainnet are also available on popular Layer 2 chains like Arbitrum. In many cases, you can bridge ETH to Arbitrum or another Layer 2 to use the same app on a different chain with lower transaction costs.
What Do You Need to Use dApps?
Using decentralized apps comes with a few prerequisites and requires some research before jumping into the deep end of the pool. Let’s look at some of the basics you’ll need to use an app like Uniswap.
Crypto Wallet and Supported Browser
You’ll need a crypto wallet compatible with the network you want to use. For example, you can use Best Wallet for Ethereum, Base, BNB, or Polygon. Several other EVM-compatible networks are also supported.
Best Wallet is available as a mobile app. Install the extension using a trusted link on the Best Wallet website. Best Wallet allows you to import a crypto wallet using a seed phrase or make a new wallet. Save your seed phrase in a safe place (not online), and never share it with anyone.
For other networks, like Solana, you’ll need a crypto wallet compatible with that specific network. Many Solana users choose Phantom Wallet or Solflare.
Crypto for Gas Fees
Crypto networks use specific coins or tokens to pay transaction fees, also called gas fees. Think of it as fuel for the network. You’ll need the right type of crypto for the network you want to use, as well as some crypto to use with the dApp you want to use. For example, if you want to swap ETH for the hottest meme coins on Uniswap, you’ll need enough ETH to buy the amount you want, plus a bit for gas fees.
You can buy crypto on a trusted crypto exchange like Coinbase and then send it to your crypto wallet. Be sure to buy the right type of crypto for that network and transfer it to the correct network. For the Ethereum, Arbitrum, or Base networks, you’ll need ETH. However, you’ll need SOL for Solana.
Knowledge of the Specific dApp
It’s also essential to learn about the decentralized app you want to use before you start clicking buttons on the app and authorizing transactions with your crypto wallet. For example, on Uniswap, you’ll want to learn about liquidity pools and slippage before making a swap. If you’re considering providing liquidity, you’ll also want to read up on impermanent loss.
Lastly, you’ll want to check for audits for the dApp you want to use. You can usually find information about audits on the website or in the help docs. Audits from reputable firms don’t guarantee that your funds are safe, but they provide an assurance that an expert team has reviewed and tested the code.
Conclusion
Decentralized applications offer permissionless access to trading, finance, gaming applications, and much more. These applications are usually open-source, meaning the code is publicly available, and often use decentralized governance as well. The token holders vote on proposals for the dApp. To connect to dApps, you’ll need a crypto wallet that’s compatible with the blockchain you want to use. You’ll also need gas tokens for that chain. You can use a trusted exchange like Coinbase to buy gas tokens and then send them to your crypto wallet to begin your dApp journey.
FAQs
What are the biggest dApps?
Some of the most popular dApps include Lido, which offers liquid ETH staking, and Aave, which offers permissionless lending and borrowing. Uniswap, another popular dApp, lets users swap countless tokens and supports 21 blockchains.
What are the best dApps for beginners?
If you’re new to decentralized applications, you can consider lending on a platform like Aave to earn a yield. For swaps, you can consider Uniswap, which provides an easy-to-use trading platform.
Is it safe to connect my wallet to dApps?
Proven and audited dApps are generally safe. However, the smart contracts used by these apps may still hold undiscovered vulnerabilities. Exercise extreme caution with newer dApps that don’t have an audit history.
Does Bitcoin use dApps?
Bitcoin itself doesn’t support dApps in the traditional sense due to limitations in its scripting language. However, several Bitcoin Layer 2 networks, such as Merlin, offer access to dApps similar to those found on Ethereum or Solana.
How do you check if a dApp is legit?
Research the application’s reputation and usage statistics. Sites like DeFi Llama can help you understand how much the app is used (and trusted) by the community. Also, look for verifiable audits from well-known audit firms. It’s wiser to treat newer dApps with suspicion until they have a solid audit history.
References
- Smart Contracts (uva.nl)
- Ethereum Whitepaper (ethereum.org)
- The General Theory of Decentralized Applications, Dapps (GitHub/David Johnston)
- The next evolution of digital identity (ibm.com)
- Crypto Hacks, Rug Pulls Led to $473M Worth of Losses in 2024: Immunefi (Yahoo Finance)
- As Nationwide Fraud Losses Top $10 Billion in 2023, FTC Steps Up Efforts to Protect the Public (ftc.gov)
Ihssan El Medkouri 
Connor Brooke 