Hi all,

Have you ever downloaded an app for your smartphone? Then you know the basics for our discussion today. Apps are great to personalise your phone or your computer. You may have the same phone as your friend, but you're using different apps so you can't simply swap your devices.

When you're using an app, you probably don't think about the IT in the background. Apps are usually provided by a company or some other organisation which also provide the necessary tech. You want to transfer money from your bank account? You'll need your bank's app to get access to your bank's servers.

Such a structure has benefits, but it also creates problems. Decentralized applications (dApps) could solve some of these issues – and we'll explain how that might work.

So what’s up?

We'll help you to understand the concept of dApps:

• Why are they important?

• What are the benefits?

• What are the disadvantages?

Let’s get started! 🤓

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 technology, 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, ensuring that no central authority is in control.

Based on blockchains, decentralized applications allow users to engage directly with one another. You don't need a middleman – for example a bank – to ensure that transactions will be completed. Software is instead used to govern those transactions. That's what is called a trustless environment.

In many cases, that's a good thing for users, both for individuals and organisations.

Why are dApps important?

When you use a dApp, your data cannot 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 have been introduced in recent years to ensure that users remain in control. After all, few people would want to make their financial situation 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 deeper insights – and there is no shortage of additional information.

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 of dApps?

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 to more than 50,000 in June. 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 the progress in recent years. So-called smart wallets are one step on this way – but that's a topic for one of our next posts.

That’s the end for today! 😢