Have you ever downloaded an app for your smartphone? Then you know the basics already.

Apps are perfect to personalise your phone or your computer. You may have the same smartphone as your friend but you're using completely different apps. That means you can't simply swap devices.

When you're using an app, you don't think much about the infrastructure in the background. Most apps are provided by a company or some other organisation which also takes care of the tech stuff. You want to transfer money from your bank account? You just use your bank's app to access the relevant server.

Such a structure has a lot of benefits. However, there are some potential problems as well. Decentralized applications (dApps) could solve some issues – and we'll explain how that might work.

First of all, it's useful to understand decentralization as a concept. It means that power, control, and decision-making are distributed across a network or system.

Instead of allowing the CEO of Meta to determine the future of Facebook, imagine a social network that is not controlled by a central authority. (Examples already exist, but user numbers are tiny compared to current social media giants.)

In theory, decentralization sounds nice. Without the necessary tech, however, it's impossible to decentralize any application at scale. That's where blockchains come in. They can, for example, maintain a shared database and verify transactions. They can ensure that no central authority is in control.

Based on a blockchain, a decentralized application allows users to engage directly with one another. You don't need a middleman – such as a bank – to ensure that transactions will be completed. Software governs those transactions instead. (The technical term for that is “trustless environment” because you don’t need to trust the middleman.)

Why are dApps important?

When you use a dApp, your data can’t be controlled by one entity. Instead, the data is stored on a blockchain where it is easily accessible.

That doesn't mean all data is public. Various solutions can ensure that users remain in control. Few people would want to make their finances publicly accessible, and companies don't want competitors to have an in-depth look at their entire supply chain.

Overall, dApps could lead to a complete change when it comes to handling information and resources.

• Efficiency and costs: dApps don't need an intermediary which could lower costs, increase efficiency and allow easier access to various services.

• Accessibility: dApps can be used by everybody with an internet connection, making services and digital assets widely available.

• Security: Blockchain technology ensures that data cannot be altered which is vital for many private and business use cases.

• Transparency: Users can verify data integrity as dApps maintain transparent transaction records.

In a nutshell, dApps can be used for a broad range of purposes: financial transactions or supply chain management, voting systems or gaming. And that's just the start.

What are the benefits of dApps?

We're only scratching the surface because we don't want to become too technical. The Ethereum website is a good starting point for much deeper insights.

In a nutshell, dApps have several benefits compared to traditional applications.

Transactions and activities are recorded on a blockchain. Anyone can interact with the data. Users don't have to rely on a central authority or another intermediary.

Innovation can accelarate as developers can build on existing protocols (which may even include open-source parts).

Deploying a dApp on the blockchain means that clients can always interact with the software. There is no downtime similar to traditional applications as long as the blockchain itself is running.

As with pretty much everything else, however, dApps are not perfect in every case.

What are the disadvantages?

Scalability is one of the biggest challenges. Blockchain technology is still very young, resulting in limitations when it comes to processing speed and capacity. 

Think about a blockchain-based social network like Farcaster. It has experienced impressive growth from around 2000 daily active users in December 2023 to more than 50,000 just six months later. Compared to Facebook's more than 2 billion daily active users, that's not a lot – and it's not clear how much Farcaster could actually grow in the short term.

Too much growth could even have knock-on impacts. When an app uses too many resources, it may be unavailable for users. When a dApp gets too big, it leads to congestion – which hits all other dApps on the same blockchain.

Security is another drawback. While a dApp will run as long as the blockchain is running, modifying the code is more complicated than in traditional apps. That's particularly problematic when bugs or security risks have been identified.

Finally, the user experience is often worse than in traditional apps. Most people are used to simple logins (e.g. through their Facebook or Google account) and fast interactions.

Achieving that with a dApp is technically challenging, despite progress in recent years. So-called smart wallets are one step on this way – but that's a topic for one of our future posts.

That’s the end for today! 😢