A Guide to Decentralized Applications: Pros, Cons, Examples (2024)

What are decentralized applications (dApps)?

Decentralized applications, also known as “dApps” or “dapps,” are software programs that operate on a peer-to-peer (P2P) computer network or blockchain. Unlike centralized apps that run on a central server, dApps operation is distributed across a blockchain network of servers in an open-source, public environment. It thus cannot be controlled by any singular entity. In fact, many dApps are created on Ethereum using smart contract codes integral to the nature of decentralization.

How do decentralized applications work?

To explain how decentralized applications work, it is necessary first to describe the Ethereum Virtual Machine (EVM) and smart contracts. The EVM is the global virtual computer owned and managed by every participant on the Ethereum network. A smart contract is a reusable portion of code published into the EVM that anyone on the platform can access. Smart contracts operate according to programmed logic and cannot be changed once deployed on the network. When dApps run on a P2P network, they are controlled by the logic written into the contract that is stored and agreed upon by all participants in the network, unlike centralized apps that are run by a centralized server exclusive to an individual or company.

Examples of Decentralized Apps

DApps offer a range of functions and many practical applications. A few examples include the following:

• Real estate dApps facilitate buying and selling properties directly between the buyer and seller. Real estate dApps can also track property ownership, deeds, and other vital documents and expedite the contract process. In addition to enhancing traditional real estate, dApps are advancing the growing industry of property-sharing.
• Financial services dApps enable peer-to-peer financial transactions, including currency exchange and asset management. With dApps, the parties involved have greater control over the transaction and do not have to pay a banking intermediary a share of the transaction or interest. Furthermore, with a dApp, transactions can occur in real time due to the efficiency of smart contract technology.
• Healthcare dApps store and track healthcare records and facilitate communication between providers. Healthcare dApps also can transform healthcare by empowering individuals with valuable medical information, shifting the focus to preventative care, and expanding access to care.
• Education dApps include online learning platforms facilitating direct student and teacher interaction, gamify and incentivizing student engagement, and storing and accessing academic achievement records.
• Social media dApps enable content sharing and engagement without a centralized authority to monitor, moderate, or censor. Instead, the community as a whole is empowered to vote to determine the rules and guidelines of the platform. When it comes to influencers and profitability, on dApps, influencers can earn more money through a built-in tipping system and user-run ads that do not have to pay a cut to a company.
• Supply chain dApps allow parties to track shipments, send and receive payments, and communicate with other stakeholders. Supply chain dApps can increase transparency, accountability, accuracy, and efficiency.

Pros and Cons of Decentralized Apps

Pros

DApps offer many advantages that include privacy and free speech, among many others. With dApps, users can keep their identity private because they do not have to share personal information to utilize the application. In fact, the use of smart contracts allows users to perform transactions as anonymous parties without the need for a central authority. Additionally, dApps are resistant to censorship because no single party can block or delete messages. To change any content shared on the dApp, community members must arrive at a consensus through a voting process.

Cons

DApps are relatively new and thus may present some potential challenges related to network demand, user-friendliness, and the ability to modify the code. Because dApps are decentralized and often complex, they sometimes require significant computations. There are some concerns about the potential for network overload and congestion, although ongoing advancements in network technologies may mitigate this. Furthermore, the wide adoption of dApps will require developers to create end-user experiences that successfully compete with established, traditional centralized applications. Additionally, it can be challenging to modify code and data published to the blockchain so dApps are difficult to update or enhance.

Ultimately, although dApp technology is still relatively new, it offers many significant benefits that make it relevant for businesses across many industries to understand and consider.

About Encora

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