The price of Bitcoin is volatile. We saw prices as high as $20,000 per coin in December 2017. In February 2018, the price slumped as low as $7,500. The cryptocurrency markets are not for the faint-hearted.
But there is much more to Bitcoin and the myriad altcoins. The technology behind cryptocurrencies—the blockchain—is a revolutionary concept. And on top of the blockchain, some developers are now introducing Decentralized Applications (DApps).
But what is a DApp and what can they do for us?
What Is a Decentralized App?
DApps are built on top of and integrated with blockchain technology.
Want an example of a DApp? Bitcoin itself is one. Bitcoin is a decentralized distributed blockchain solution that allows financial transactions. In that, you can probably garner an idea of what defines a DApp.
The Ethereum White Paper that defined the early Ethereum network split DApps into three main categories:
- Financial Applications: Provide users with methods to manage finances, both fiat and crypto-based, including savings, wills, and “even some classes of full-scale employment contracts.”
- Semi-Financial Applications: Involve money, but finance is not the main focus; the given example is for “self-enforcing bounties for solutions to computational programs.”
- Non-Financial Applications: Do not involve money at all, such as an identity verification process, voting system, governance tool, or even decentralized file storage system.
What Makes It a Decentralized App?
According to The General Theory of Decentralized Applications White Paper, an application can only be considered a DApp if it meets the following criteria:
- Open Source: The DApp must be completely open source, operate autonomously, and importantly, have no single controlling entity regarding its tokens. Adaptation and improvements are permitted, but all changes require the consensus of the DApp stakeholders.
- Decentralized: Cryptographically store all data in a publicly accessible decentralized blockchain.
- Tokens: Offer a token/coin native to the blockchain that allows both access to the network and contributes value from miners and users.
- Algorithm: Use a standard cryptographic algorithm to enable mining through the node network.
Again, Bitcoin provides the easiest example for a decentralized application. While there is some discontent as to the direction of Bitcoin’s development, it still ticks all those boxes. The whitepaper continues, explaining that there are three types of DApps:
- Type I: The DApp has its own blockchain.
- Type II: The DApp uses the blockchain of a Type I DApp. Type II DApps are protocols that issue tokens necessary for them to run.
- Type III: The DApp uses the protocol of a Type II DApp, but are also protocols that issue and require tokens.
Confused? Think about it another way.
A Type I DApp is like an operating system: Windows, macOS, Linux, and so on. Type II DApps are similar to “general purpose software programs” like a word processor or spreadsheet program. Type III DApps are similar to specialized software that uses one of the proceeding types of software, “like a mail-merge tool that uses a word processor.”
Examples of Decentralized Apps
Now that you understand the definitions and characteristics of a DApp, let’s consider some examples (other than Bitcoin and Ethereum). These examples will give you a better understanding of how DApps function as well as their overall use in the highly networked world around you.
The following example also illustrates the three categories above.
Augur combines decentralized networking and financial prediction markets to create powerful forecasting. It’s built upon the Ethereum blockchain. In its current guise, Augur allows you to make predictions about real-world events not limited to financial markets. The platform turns your prediction into “shares” that other users can buy or sell.
Augur is an example of a Type II DApp.
Golem was one of the first global marketplaces for your idle computing power. The platform styles itself as a “global, open source, decentralized supercomputer that anyone can access.” What does that mean? Well, it means that if you have unused computing power, you can lend it to the network. In turn, that unused or idle computing power is available for purchase from the Golem network as part of a combined bundle.
Any user can share their computing power and earn Golem Network Tokens. The first Golem use case is for GCI rendering, enabling artists to process massive computationally intensive Blender and LuxRenderer scenes (both 3D creation suites). In the future, Golem will lend your idle computing power to machine learning projects, business analytics, and much more.
Golem is an example of a Type II DApp.
Aragon is an extremely ambitious decentralized management platform, also built on the Ethereum blockchain. It wants to break down the traditional barriers that restrict the creation and maintenance of organizational structures. In other words, Aragon wants to make it easier to create private Decentralized Autonomous Organizations (DAOs), along with everything you need to succeed. This means arbitration, token management and transfers, role assignments, fundraising, and much more.
The Aragon Network Token, ANT, allows users to directly participate in the operation and decision making process for their network.
Aragon is an example of a Type II DApp.
Sia is a promising decentralized storage platform that leverages “underutilized hard drive capacity around the world,” creating a first-of-its-kind blockchain-based data storage marketplace. The platform turns those empty hard drives into cheap cloud storage that almost anyone can use. Prices are cheap, especially when compared to other major cloud storage providers.
There are still a few issues with the Sia platform, plus new features set to arrive. But Sia is a popular project that will end some of the dominance of major cloud hosting providers, and give some power back to individual users. SIA CEO David Vorick even has dreams of partnering with Netflix as “one of [his] personal goals for our three-year timeline.”
Sia is an example of a Type I DApp.
5. SAFE Network
The SAFE Network uses a decentralized approach to protecting consumer data and private communication. SAFE, which stands for Secure Access For Everyone, uses peer-to-peer technology to share that computing power between connected users. This creates a secure private network, rather than relying on centralized servers.
The SAFE Network ultimately wants to protect users from heavy-handed governments, censorship, data collection, criminals, and more. If you contribute your storage space and network capacity, you’ll earn MaidSafe, the SAFE Network token. In turn, you can trade this for Bitcoin (and then fiat currency if you wish).
The SAFE Network is an example of a Type III DApp.
DApps and ICOs
The surge in decentralized apps has overseen a huge rise in the number of Initial Coin Offerings (ICOs). As part of the stipulation for a DApp is its own token (read: coin), the development and release of a new DApp is usually accompanied by an ICO.
An ICO is like crowdfunding for cryptocurrencies. As the DApp is a newcomer as both an application (untested, unsure of future) and a token (unknown, potential to fail), the initial cost per token is extremely low.
Most decentralized applications release a white paper before their ICO. Potential investors can read about the project, weigh its potential, its development up to a certain point, analyze the team working on the project, and consider if it is a worthwhile investment. ICOs are a way of raising funds before project completion. As such, the development team decides the coin price, not the investors.
When the DApp goes live, its token has a chance of listing on a cryptocurrency exchange where its long-term price will regulate, alongside updates to the DApp project itself.
The Future Is Decentralized
The inexorable rise of blockchain technology is slowly changing the world around us. Long established services will not just disappear overnight. But DApps are set for a bright future as part of an evolving, decentralized future that will shift how we interact with myriad day to day services, not least finance and banking.
Don’t believe me? Just look at how governments and institutions around the world scramble to either regulate or create their versions of the same DApps, blockchains, and cryptocurrencies. The future is decentralized.