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Hi folks 👋 ,
It was a pretty eventful (unicorn) week for the blockchain ecosystem in India last week. One of the popular crypto-exchange in India, CoinDCX, is on track to become a Unicorn (a privately held firm with a valuation of > $1bn) as it is in discussion to raise $120-150mn Facebook co-founder Eduardo Saverin’s B Capital Group 💥 And India’s first blockchain unicorn, Polygon, has launched a new unit called as ‘Polygon Studios’ - focused on helping to advance blockchain gaming and non-fungible tokens (NFTs). Blockchain is going to the moon in India! 🚀
With the rise of so many blockchain-based companies and their applications, it’s time to get introduced to the D-gang of the blockchain ecosystem (don’t read Dawood).
🎯 So, what are DApps?
Simply put, DApps is short for Decentralized Applications. These are normal applications - like your Whatsapp and Facebook, just that they run on a decentralized blockchain network. But there are some similarities and some key differences between a normal App and a DApp.
It's just recently that the term ‘DApps’ has caught on, but decentralized applications have existed long before blockchain technology even got mainstream. There have been platforms such as the original ‘Napster’ and ‘Bittorrent’ (everyone would have downloaded movies from torrent, alas illegally, before the Netflix, Hotstar, and Prime revolutions) - they used a peer-to-peer network to a great extent. However, it was blockchain technology, more specifically Ethereum’s rise to prominence, that popularized both the concept and the ‘DApp’ moniker.
👀 Similarities - Normal App vis-a-vis DApp:
Applications or Apps are typically thought of as software applications that run on desktop or mobile devices. For example, Microsoft Word is an app that runs on Windows operating system and a desktop. Similarly, Instagram is an app that primarily runs on mobile phones such as Android or iOS.
Any application has 2 components: Front-end and Back-end. Front-end refers to the user interface or simply put what is visible to the end-user to interact with the app. Back-end refers to how the app goes, fetches, and serves data from servers, and databases, to the user.
If we consider an analogy, front-end is the dish (app screen) that is served to you on your dining table (app), while back-end refers to how the dish is made, fetched, and brought back from the kitchen (infrastructure like servers and databases) to be served peimarily to you by the waiter (Application programming interfaces or API’s). The following image sums it up:
So a normal application and a DApp are just similar in that both would have a front-end for the user to interact with the app. From a user’s perspective, there is a little difference - he/she may not even realize if it’s a DApp or a normal app they are using unless explicitly called out to them. Things get really interesting and different at the back-end.
DApp = Normal App Front end + Smart Contract Back End
🤷♂️ Differences - Normal App vis-a-vis DApp:
‘D’ for Decentralization:
Most of the normal apps we use today on a daily basis are controlled by a central company server. The company’s server manages, takes control, and makes decisions on how the app would function. The majority of the app resources (servers, databases) are managed centrally and distributed according to the will of the company.
If you asked Facebook to share (or even view access) their databases with you, will it do that? Umm, no - they would call it proprietary information. They are monetizing it through sharing YOUR data with 3rd party service providers (More of that in the 3rd point).
French journalist, Judith Duportail had published a piece on Tinder (dating app) in The Guardian newspaper in 2017, titled “I asked Tinder for my data. It send me 800 pages of deepest, darkest secrets!”.
Clearly Data is the new Oil - what do you think how much pages / books Facebook would have your info?
DApp development turns the table in favor of end-users, who can access the blockchain network from a decentralized server network, see and search through entire databases, and create smart contracts to specify what they would want to do with their data. The smart contracts can be configured that if any 3rd party service provider uses your data anywhere, you will even get paid! This makes the decision-making process very, very democratic.
Creating Trust:
When you login on Gmail or access Telegram, you expect them that they would verify your credentials, store them effectively and grant you permission to use their applications accordingly. With their past performance (breeze of use or ‘Save password’ feature from Gmail) and business reputation (End-to-end encryption of your chats), traditional applications build trust amongst users. Most often than not, intermediaries are also involved to serve as guarantees for the quality of service while doing their business - for example, card payment and procession companies like Visa and Mastercard serve as intermediaries and you trust them to complete your payment once initiated.
The process of creation of trust in DApps lies in the technology itself - blockchain enabling consensual decision-making process. It also helps that DApps are open-source which means code is available to be freely shared with the developer eco-system. In contrast, most centralized apps are commercial projects that don’t allow code sharing (again proprietary!).
Financial Models:
In DApps, the value is created and derived itself in the applications, they don’t rely on external monetary value. By enabling creators to issue currencies as tokens, they can generate the value of their work inside the application and also trade it on financial markets (remember NFT’s?). The tokens themselves are used as a reward system for the creators - thus the application itself incentivizes them to create and earn more. No relying on Ads and views on the platform to earn money!
In contrast to a normal app, all the value generated goes back to the company and the company decides if it would share the value with its users and creators (read Facebook or Youtube).
It’s an unpopular opinion - but Bitcoin is arguably the first ever DApp created.
Types of DApps:
At this moment, DApps are classified into three:
Type I
Type I DApps are decentralized apps that have their own blockchain. Popular examples of Type I DApps are Bitcoin and Litecoin.
To better understand type I DApps, one can compare them to the functionality of operating systems, such as Windows, or MAC OS, for example.
Type II
Type II DApps are decentralized apps that use the blockchain of type I DApps. However, type II DApps are protocols that use tokens to function. You can compare their functionality with that of a general purpose software program, like a spreadsheet, for example. It is an application of its own, but it needs the operating system behind it to work.
OpenSea - a NFT Marketplace, is such a DApp and transactions on OpenSea run on the Ethereum native currency - Ether. Another example would be Steemit, a social media platform working with rewarding systems. Steemit works on top of the Steem blockchain. These systems allow users to vote and “tip” content creators. Tips and votes encourage both adding value, as well as a constant presence on the platform.
Type III
Finally, type III DApps use protocols of type II DApps. One example of type III decentralized apps is the SAFE Network.
The SAFE network uses the type II app Omni Protocol and issues tokens ‘safecoins’. These are used to acquire distributed file storage.
Analogy: Type I DApps are like Operating Systems such as Windows or MacOS. Type II DApps are similar to General Purpose Software Programs such as Word Processors. Type III DApps can be equated with a Special Software that use a General Purpose Software Program such as a mail-merge tool that uses a word processor.
DApps Statistics (As of 1st August, 2021):
I have taken these statistics from dappradar.com - it updates the following everyday. It’s exciting to see such statistics around the DApp ecosystem and its just a matter of time before this entire industry takes off (it has already taken off in US, time to trickle down on the Indian shores!) 🚀🚀🚀
Number of DApps: 6,339 on 22 protocols 🔔
Users per category - Games, DeFi, Exchanges, etc for the past 30 days 📈
Transactions per category - Games, DeFi, Exchanges for the past 30 days 🏅
You can explore more here:
https://www.stateofthedapps.com/
https://dappradar.com/rankings
https://dappradar.com/reports
That’s for it today folks!
Sources:
https://coinmarketcap.com/alexandria/article/what-are-dapps - examples of Dapps
https://www.leewayhertz.com/what-are-dapps/
https://towardsdatascience.com/what-is-a-dapp-a455ac5f7def
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