What Are dApps?

05 Jul 2019

Decentralized applications (dApps) are developed on distributed ledger technology (DLT)-based platforms such as the Ethereum (ETH) blockchain, EOS, and the Tron (TRX) network. One of the main advantages of building dApps is that they are not centrally managed, controlled, or owned by a single entity,

Many different types of dApps have been launched on public, permissionless, blockchain-enabled networks. However, dApps built on DLT-powered networks are still in their early stages of development - as their underlying technology has not yet scaled effectively. 

How Are DApps Created?

In order to create a decentralized application, developers may write the app’s frontend and user interface code using a high-level programming language. Additional functionality may be programmed into the application by making function calls (from the frontend) to the backend.

Most of the popular dApps that have been launched involve gaming and gambling, however there’s also a growing list of decentralized apps that are being developed for the nascent decentralized finance (DeFi) ecosystem.

Decentralized Finance Powered By Decentralized Applications

According to DeFi Pulse, there are currently over $600 million locked into various DeFi platforms including: 

  • MakerDAO: a decentralized, autonomous Ethereum-based lending solution, 
  • Compound: an Ethereum-powered protocol for creating “efficient money markets”,
  • Dharma: an Ethereum-based protocol for borrowing and lending crypto without using a debit or credit card, 
  • Uniswap: an “automated token exchange” developed on Ethereum

Open-Source Development Encourages More Developers to Write Code    

In most cases, the source code for decentralized apps has been uploaded to Github repositories by their development team - so that it can be viewed by everyone. Open-sourcing the software development process makes it a lot easier for other programmers to learn how to write code. 

Managing open-source software libraries is also easier because the code associated with an application can be accessed and improved by everyone. Open-sourcing applications also encourages more developers to contribute code to projects. 

Building Uncensorable dApps for Prediction Markets 

In addition to creating decentralized applications for the nascent DeFi ecosystem, blockchain developers have built dApps which allow users to participate in prediction markets. While centralized prediction market platforms are also quite popular, decentralized prediction networks such as Augur (REP) and Gnosis (GNO) appeal to many users because they might be impossible to shut down.

As a fully open-source and decentralized network, Augur’s prediction market network is not controlled or managed by a centralized authority. In August 2018, regulators had expressed concerns regarding Augur’s “assassination markets.” “Death pools” or assassination markets let users place anonymous bets - which may motivate people to commit murders since they could get paid for it.

Regulatory and Compliance Challenges 

While the demand for blockchain developers is steadily increasing, the evolving dApp and smart contract development ecosystem is still in its preliminary stages. Currently, dApps for prediction market platforms, gaming, and gambling (among other use cases) are not being properly regulated. 

The current regulatory framework cannot be applied to most types of distributed, DLT-based applications or platforms due to their decentralized nature. Existing regulations are specifically designed to meet the compliance requirements of different jurisdictions throughout the world. 

Since dApps can be created and used by anyone, regardless of their physical location, it becomes challenging to regulate them. Many analysts have argued that it might not even be possible to create and enforce regulatory policies if a particular platform or service is completely decentralized.  

Software Bugs Have Resulted in Huge Losses for Users

In addition to regulatory challenges, many existing dApps and their associated smart contracts contain major software bugs - as they have not been designed properly. Due to serious vulnerabilities found in their source code, users of these dApps have lost a large amount of valuable cryptocurrency tokens. 

In March 2019, several bad actors exploited a major vulnerability found on Augur’s decentralized prediction network. Joey Krug, the Co-Founder of Augur, confirmed (at that time) that the Augur platform was allowing users to place bets on practically impossible or highly unlikely outcomes. 

Malicious Users Exploiting Decentralized Prediction Markets Applications

The malicious users that placed these types of bets had also voted to make their bets invalid. As a result, Augur’s network began distributing all the funds collected (through bets) to all the users who had participated in those particular bets. As explained by security researchers, all participants that placed bets on practically impossible events were paid, regardless of whether they had predicted the correct (or incorrect) outcome. 

Although a patch for the vulnerability was released in an update, called Augur version 2.0, developing and using dApps remains a high-risk activity. In May 2019, a major vulnerability was detected on the MakerDAO platform - which could potentially have made user funds inaccessible

Critical Vulnerability Detected on MakerDAO Platform

The Maker Foundation, an organization that supports the ongoing development of the MakerDAO ecosystem, informed the platform’s users that security audits were being conducted by cybersecurity researchers at Zeppelin and Coinbase. Users who were holding MKR tokens (Maker’s native token) were advised to move their funds from the old contracts to their personal crypto wallets. 

Centralized vs. Decentralized Applications

In most instances, a software bug found in centralized applications would not require that users manually (or individually) migrate their personal data or accounts to a different platform. At present, centrally managed services are not only easier and more efficient to use than decentralized ones, but are also more secure. 

Because decentralized platforms are relatively new, most application developers are not as skilled at writing code for dApps when compared to creating centrally managed apps. Moreover, not all applications need to be decentralized - as the main benefit of decentralization is the ability to build and deploy uncensorable applications. 

Ethereum, EOS, Tron Remain the Most Widely-Used dApp Development Platforms

Despite peer-to-peer (P2P) applications having limited (legitimate) use cases, a relatively large number of dApps have been created on leading cryptocurrency platforms including Ethereum, Tron, and EOS.

According to the latest report from DAppReview (at the time of writing), there were over 113,000 active dApp users on the EOS network and 2.4 million EOS tokens worth around $14.4 million were traded (in the past 24 hours).

Meanwhile, Tron, the second most active dApp network, saw more than 37,000 users trade $9.2 million on its platform in the past 24 hours. Ethereum, the largest smart contract platform in terms of market cap, had over 19,000 users on its dApp network and a total $11.2 million in ETH tokens were traded. 

Notably, TRONbet, a decentralized online betting application developed on Tron, remains one of the most widely-used apps. The EOSBigGameApp and EOSJackSteam apps also recorded relatively high volumes and user activity in the last 24 hours.

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