The current financial sector and the overall business environment is built upon a centralized structure that has provided order and standardization to transactions and processes. With a system in place that has worked for decades and maybe even centuries, why would you ever want to change it, especially in terms of adding in decentralized applications (Dapps)?
Yet, that is just what is now happening as the list of benefits associated with a decentralized model continues to grow and as applications , such as Ethereum appear.
A white paper on the subject of decentralized applications, also known as dapps, has presented numerous reasons why it makes sense to build them given their ability to be flexible, transparent, and resilient.
What are Dapps?
According to the dapp white paper, for an application to be considered truly decentralized, it has to:
- Be completely open-sourced and operate autonomously with no entity being in charge of the majority of its currency;
- Any protocol changes that are designed to make some overall improvement must be approved by all its users;
- Cryptographically store all of its operation data and records in a public blockchain;
- Use a bitcoin or a cryptocurrency that is native to its blockchain system so that the cryptocurrency can be accessed for current use and any future contributions to its value from miners; and
- Generate tokens, or cryptocurrency, which follow a standard cryptographic algorithm.
To provide a detailed picture of dapps, they have been further classified into three types:
Type I dapps have their own blockchain. An example of these are Bitcoin, Litecoin, and other “alt coins.” :
Type II dapps use the blockchain of a Type I dapp. They are their own protocol, and have tokens to provide the necessary functionality. The Omni Protocol is an example of a Type II dapp. This type is like a software program.
Type III dapps leverage the protocol of a Type II dapp to become their own protocols. They also have their own tokens so as to generate a use. As an illustration, the SAFE Network uses the Omni Protocol for issuing safecoins that are then used to get distributed file storage. This type of dapp is like a specialized type of software that fulfills a unique need or function.
This is how each level of dapp builds upon the next one for more sophisticated application.
The Case for Dapps
Dapps add value in a number of ways :
- Dapps economize on digital resources, providing ways to monetize what has previously been a very difficult thing to do, especially in terms of areas like the sale of content and other digital assets.
- A decentralized application can also provide a competitive pressure that changes the pricing of digital resources for a greater range of values to serve a wider market of users. Instead of percentages we can now introduce increments such as percentages of percentages, etc.
- Dapps are being used to establish consensus through the proof-of-work mechanisms. This reflects the amount of work that each stakeholder contributes to the dapp’s operation. The mechanism is also known as mining, or proof-of-stake, the latter being made in relation to the percent of ownership each stakeholder has in the dapp. Some companies like Peercoin use both mechanisms to establish a consensus for ensuring that no single individual is in a position to take control over the dapp.
- Dapps serve as a mechanism for token distribution through development, fund-raising, and mining. The multiple ways tokens can be distributed offer more flexibility and opportunity than with a centralized system that is controlled essentially by one main institution such as the S.E.C.
- Dapps offer completely new ways and processes to work and conduct transactions. For example, dapps are used to potentially enable embeddable records like smart contracts; to prevent fraud through the use of tokens; or the evolution of the function of a medium of exchange such as what is offered now by Ethereum in building distributed autonomous corporations (DACs).
Dapps in Action
To further justify the case for dapps, here are some prime examples of decentralized applications. See how they are actually changing the present and future of many industries:
- The SAFE Network is focused on providing the greatest level of security for all Internet users.
- Factom is simplifying the process of enhanced big data management recordkeeping.
- Ethereum has a created a programming language that then allows developers to create their own decentralized applications on the Ethereum blockchain with exciting results that address all types of consumer and business issues.
- BURST addresses the issues that have made cloud storage expensive and unreliable. Similarly, MaidSafe and StorJ have followed suit with a decentralized data structure for public or private cloud storage.
- Augur is known as a decentralized prediction market that rewards its users for forecasting events.
- BlockAuth provides a multi-signature system for sharing private data with third parties.
Build Dapps and They Will Come
That was just a short list of the dapps already at work changing how we work, live and transact. The decentralized environment of dapps demonstates that it can result in more innovation and more solutions to long-standing business and consumer challenges.
As more applications become developed across a wider industry net, a better picture will emerge of the robustness of dapps and why so many people are so excited about building them.