A dApp, or decentralized application, is a software application that operates on a decentralized system, utilizing a large number of nodes rather than a single centralized server.
According to DappRadar’s dApp Industry Report, Unique Active Wallets (UAWs) have experienced a 124% year-over-year (YoY) growth rate, with an average of around 4.2 million UAWs daily in 2023.
Additionally, the transaction count in the DeFi sector crossed 5 billion, with an over 537% YoY surge.
Apart from DeFi, sectors such as gaming, NFTs, social, and others contributed almost 14 billion transactions in 2023 compared to the 10 billion total transactions in 2022. These figures indicate the increased demand and associated growth in the dApp space.
In this article, we’ll see what decentralized applications (dApps) are, how they work, and how you can get started with them.
A dApp is an open-source software application that operates on a peer-to-peer network, typically a blockchain. In a blockchain ecosystem, a dApp can be oversimplified as a smart contract with a human-readable UI.
Based on a document published as ‘The General Theory of Decentralized Applications, Dapps’ by technologist David Johnston and others, an application must fulfill the following criteria to qualify as a dApp.
A dApp is (generally) built on a decentralized public network with a user interface (UI) that allows the crypto community to participate in various activities such as payment, token transfer, NFT purchase, exploring the metaverse, staking, and more.
To ensure a smooth and efficient user experience, the dApp’s backend is powered by smart contracts, which facilitate decentralized decision-making and transparent operations. The smart contracts deployed can be simple or complex, depending on the dApp's desired functionality.
The four major components that help in the proper functioning of decentralized applications include the following:
A smart contract is a self-executing program on a blockchain that functions strictly based on the provided set of instructions. The involvement of smart contracts eliminates the need for a central authority to enforce an agreement or a contract.
Developers custom program the smart contract to ensure that their dApp provides the desired crypto services to its users in a secure, transparent, and automated manner.
Cryptocurrency can be considered as the lifeblood of dApps as it serves as the primary medium of exchange. Participants use various supported cryptocurrencies to pay fees, buy or mint NFTs, purchase in-game items, and more.
In addition to spending, dApp users are also rewarded with cryptocurrencies for participating in various activities such as gaming, staking, liquidity provision, and yield farming.
Distributed Ledger Technology (DLT) is the foundation upon which blockchains are built. It records the transactions of digital assets, and all the transactional details are stored in multiple nodes. DLT's involvement helps avoid the central point of failure and adds transparency.
In short, DLT allows dApps to operate efficiently, securely, and transparently without the support of any central authority and their centralized servers.
Blockchains innately lack the potential to connect and acquire real-world data and oracles like Chainlink supply the required off-chain data on a real-time basis. For example, Oracle on decentralized exchanges (DEXs) provides its users with the live price of cryptocurrencies to help execute transactional activities.
Oracle's involvement is crucial for the proper function of dApps that provide services on decentralized finance (DeFi), NFT marketplace, supply chain services, and other sectors requiring real-time off-chain data.
Decentralized applications allow you to access and use various crypto-based services regardless of your physical location. For example, in the case of DeFi, dApps open the door for a wide range of decentralized platforms for trading, staking, investing, etc., boosting financial inclusion due to their low entry barrier.
The public availability of blockchain transactions using free online tools like block explorer helps you analyze in-depth details of your transactional activities. This transparency helps to reduce the chance of potential fraud or illegal activities that might result in the loss of users' crypto assets.
The data stored on the blockchain is highly secured using complex cryptographic algorithms to restrict the possibility of data alteration, tampering, or deletion. The operation of dApp on the blockchain network also minimizes the chances of a single point of failure and resists attacks even if a few individual nodes are compromised.
The absence of intermediaries like financial institutions allows dApp users to complete their crypto activities for low fees without compromising on transactional speed and efficiency. For example, you can use Solana-supported dApps to enjoy fast and low-cost transactions for a median fee of just $0.00064.
With the help of dApps, users can seamlessly interact with various major sectors, such as:
DeFi aims to provide a decentralized alternative to the existing financial services offered by banks and other similar institutions.
The availability of dApp unlocks the potential of faster crypto activities with zero brokerages and a reduced fee structure, allowing users to participate in trading, investing, lending, borrowing, staking, yield farming, and more.
In the case of supply chains, dApps leverage blockchain technology so that users can obtain extensive information related to the product journey in real-time.
The availability of this live tracking facility induces transparency between the customer and suppliers, which in turn builds trust and reliability within the supply chain management ecosystem.
Decentralized gaming facilitated by dApps allows global gamers to create a strong community and participate in online competitions to win prizes, including cryptocurrencies, NFTs, etc.
Popular crypto gaming platforms also reward their users for their participation, which can be converted to assets with real-world value.
Despite the decentralized and generally on-chain nature of dApps, they are not immune to exploits. If the underlying smart contract or infrastructure has vulnerabilities, hackers would pounce on the opportunity to exploit it.
Below are three examples of popular dApps getting hacked:
By now, you have a fair idea of what a dApp is and how they are the gateway into DeFi. Now, let’s explore how you can start using dApps.
A wallet is like your bank account for cryptocurrencies. You need it to interact with dApps.
Popular choices include MetaMask, Trust Wallet, and Coinbase Wallet
Make sure the wallet supports the blockchain the dApp runs on (e.g., Ethereum, Polygon).
Read this beginner-friendly guide on how to set up a crypto wallet.
You need cryptocurrency to use most dApps. If you are using a dApp that has integrated Transak, then it becomes a breeze.
Transak lets you buy crypto with your credit/debit card or bank transfer, directly inside the dApp. This makes it very beginner-friendly.
Most dApps have a "Connect Wallet" button. Click it and choose your wallet from the list. Authorize the connection.
Do not authorize or connect your wallet to a dApp that you are not familiar with as bad actors can drain your wallet immediately after you connect to a spammy dApp or website.
Each dApp is different, but they usually have a user interface to guide you.
Common actions on a dApp would be:
Transak makes it easier for beginners to get started with dApps by:
Imagine a dApp where you can buy NFTs.
Without Transak, you'd need to buy crypto on an exchange, transfer it to your wallet, and then connect to the dApp.
With Transak One:
DApps represent a shift in how we interact with digital services and each other.
By leveraging blockchain's inherent properties of transparency, immutability, and decentralization, dApps break down traditional barriers of trust and control. No longer are we reliant on centralized intermediaries to manage our data, finances, or online identities. Instead, dApps empower individuals to take ownership of their digital lives, fostering a new era of self-sovereignty and peer-to-peer interaction.
These applications have the power to reshape industries, democratize access to services, and create entirely new economic models.
Imagine a world where supply chains are transparent and tamper-proof, where artists can directly monetize their creations without intermediaries, and where individuals have complete control over their personal data.
Further, dApps that have Transak’s suite of products integrated within them are at an advantage as they provide users with the most incredible way to onboard into web3 without all the hassle.