Key takeaways

• Decentralized applications (DApps) are similar to apps people use every day, but they run on a blockchain network instead of a single server. 
• DApps have added benefits over traditional apps in areas such as privacy, censorship resistance and centralized control. 
• DApps are designed for specific purposes in the blockchain space, such as DeFi, gaming and marketplaces. 
• Creating a DApp involves deciding its purpose, developing smart contracts, building the app, ensuring data security and defending against cyberattacks.

Decentralized apps, or DApps, are the gateway to using blockchain technology in people’s everyday lives. In the same way we use apps like Uber to access a network of taxis or Spotify to access music, DApps give people a way into blockchain-based programs.

We know blockchain is a good technology for eliminating intermediaries, increasing transparency and giving users more control over their information and assets. DApps allow users to have all this decentralized control at an application level — they are the front end of the technology.

DApps can be compared to vending machines. The machine operates according to the rules set out for it, without human intervention. Users can then get what they need directly from the vending machine, and no one can stop them, change their order, or track what they ordered. Similarly, DApps function on rules set by the blockchain by employing smart contracts to run automatically and safely without being controlled by a single entity.

This article explains what DApps are, the types of DApps, how centralized and decentralized apps differ, the advantages and disadvantages of DApps, how to build a DApp, the cost of DApp development, regulatory evolution in the context of DApps and various scams surrounding DApps.

The term “DApp” refers to online programs/software built on blockchains or peer-to-peer (P2P) networks of computers — another area where DApps can be used efficiently instead of centralized applications.

In the context of DApps, a P2P network means that these apps work directly between users without needing an intermediary, like a server. Think of it like sharing files with a friend instead of going through a big file-sharing service — it’s faster and more private, and everyone involved has more control.

DApps are controlled by a community of users, not by a single company or individual. This makes it harder for someone to censor them, collect sensitive information, or commit fraud. 

Any project with a front-facing infrastructure that has a blockchain working in the backend qualifies as a DApp.

Centralized apps like Airbnb or Facebook are owned by a company that controls their operation. Regardless of the number of users, the company has sole authority over its operations and can change the rules as and when it wants.

But DApps operate on a network of computers called nodes. These nodes vote on how the app should work using a special code called smart contracts. If most nodes agree on a change, it happens automatically. 

Two common examples of DApps are Uniswap, where you can trade digital money, and OpenSea, where you can buy and sell digital art, also known as non-fungible tokens (NFTs).

Did you know? DApps are basically immune to censorship because they run on decentralized networks, and no single entity can shut them down.

How do centralized and decentralized apps differ?

Think of centralized or traditional apps as old-fashioned landlines: reliable but limited functionality. Now, consider DApps as smartphones; they offer far greater security and functionality but can still make phone calls. 

As blockchain technology grows in popularity and its application is explored deeper, it’s clear that DApps are more than a passing fad. They are the gateway to using blockchain technology in our everyday lives and offer a lot of advantages that people are looking for. 

They’re evolving into essential tools that offer safe, transparent alternatives to centralized apps, which have had their issues recently (see the Facebook and Cambridge Analytica scandals). 

Similar to how smartphones changed how we interact with digital programs and applications, DApps have the potential to transform entire industries, making processes more transparent and honest. 

The table below summarizes how centralized and decentralized apps differ:

Advantages and disadvantages of DApps

Like any new technology, DApps have their own benefits and drawbacks. Here are the advantages and disadvantages of DApps:

Advantages of DApps

• Decentralization: Since no single person or party controls DApps, it’s harder for them to be shut down or censored.
• Autonomous functioning: Special pieces of code called smart contracts make DApps run automatically without needing people to manage them.
• Transparency: Open-source code and public viewing of transactions foster greater confidence.
• Security: The distributed nature of the network makes it difficult to hack.
• Censorship resistance: Authorities find it challenging to block or control DApps.
• Community-driven: Developed and governed by communities, DApps encourage innovation.
• Incentive mechanisms: When using DApps, users may earn tokens to cash out later.

Disadvantages of DApps 

• Development complexity: Building DApps is tricky because it demands expertise in consensus mechanisms and smart contracts.
• Steep learning curve: DApps can be challenging for users to understand and navigate, potentially hindering adoption.
• Scalability: DApps might encounter difficulties handling high transaction volumes.
• User interface: DApp interfaces are often less user-friendly than traditional apps.
• Regulation: The legal status of DApps is still evolving, with ongoing uncertainty.
• Maintenance: The decentralized nature makes updating DApps a bit difficult.

Did you know? Layer-2 solutions host their own DApps, which benefit from lower fees and faster transaction speeds.

How to build a DApp

Now that you understand the basic facts about DApps, it’s time to learn how to build one. Surprisingly, creating a DApp is not as difficult as some might think; there are even examples of DApps that are easier to build than traditional apps.

Here are the steps to follow to build a DApp.

Step 1: Define your app’s purpose and mission

Before starting app development, it’s important to define a clear mission: Identify the problem you want to solve and determine your target audience. You must clearly understand your audience’s requirements and how your product will provide a solution.

Step 2: Design the smart contract

Smart contracts are the foundation of DApps. You need to plan the contract’s logic beforehand, as decentralized systems are unforgiving of errors. When writing code for smart contract development, developers should avoid unnecessary code, reduce failure points, and minimize transaction costs.

Step 3: Create the framework

From here, create your app’s front and back end. Creating an open-source, decentralized app makes it harder. You need to build a working prototype at the beginning and then add features with every iteration. 

Create a user interface (UI) framework that defines what the app will look like. Leverage user testing to fix any bugs and glitches. Tweak your UI based on initial feedback using an Agile DevOps approach, a way of developing and delivering software that emphasizes collaboration, flexibility and continuous improvement. Incremental development will continue until your app is ready for basic use.

Step 4: Prioritize data backup

Data backup is crucial for DApps. Decentralizing backups provides multiple safety nets, so distribute your storage points. Encrypt backups to protect your data from unauthorized access. Regularly back up your data using appropriate solutions, such as Arweave for DApp data. Test the restoration process to ensure it is functioning efficiently.

Step 5: Employ security measures

In the final stage of DApp development, it’s crucial to prioritize both data security and user experience (UX). Implement secure login methods such as “OAuth,” which allows users to grant apps access to their information without revealing passwords, leveraging platforms like Descope. 

Additionally, consider using “SAML,” an open standard for exchanging authentication data between different parties, to enhance security and user trust.

Did you know? The blockchain trilemma highlights the inherent challenges in building DApps. It’s tough to balance decentralization, security and scalability all at once. Often, improving one aspect can compromise another.

What is the cost of DApp development?

Developing a DApp usually costs more than creating a centralized app. Factors influencing the cost of DApp development include the complexity of the DApp, the technology stack used, the location of the development team and the design of its UI/UX. 

According to Appinventive, on average, building a DApp may cost between $25,000 and $200,000, depending upon the complexity involved. 

According to Glassdoor, in June 2024, the average annual pay for a blockchain developer in the US is approximately $111,000 a year. On the contrary, the estimated total pay for a blockchain developer in Berlin is around 77,000 euros per year.

Types of decentralized applications

Think of DApps like recipes in a cookbook — they vary not only in their ingredients but also in how they’re combined (consensus processes) to create the dish (intended purposes).

When we separate DApps, we look at their consensus process — the way they get to the end result, as well as what that end result looks like. 

Based on a consensus mechanism

In blockchain, the consensus mechanism ensures trust by validating transactions and marking their authenticity. Essentially, the blockchain can be trusted because all of the nodes agree on every transaction that has been run through it — i.e., they have reached a consensus. But the way they reach that consensus can differ and can be used to segregate DApps into three types:

Foundational DApps

Foundational DApps are projects with their own blockchain, such as Bitcoin and Ethereum. These blockchains act as hosting platforms for protocol-based DApps. 

Consider Bitcoin as a DApp that runs on its own blockchain network. It allows people to trade digital currency directly with each other without needing a bank or other intermediaries. So, when you hear about Bitcoin, you’re hearing about one of the most famous DApps out there.

Protocol-based DApps

Protocol-based DApps are built on top of foundational DApps. They utilize a unique token to operate the application. Here, “protocol” refers to the rules that outline how a DApp works and handles user interactions, transactions, and agreements on a blockchain network. 

The decentralized exchange PancakeSwap, which runs on the BNB Smart Chain, is an example of a protocol-based DApp. This decentralized exchange (DEX) uses blockchain technology to facilitate P2P token exchanges.

User-facing DApps

User-facing DApps are built upon the foundation of protocol-based DApps. These are generally user-facing applications that offer solutions for different user needs. An example is OpenSea, an NFT megastore that offers all sorts of NFTs, including digital art, collectibles, virtual worlds, sports and more. 

This marketplace features cross-chain compatibility, supporting transactions on blockchains like Ethereum, Polygon, Solana and Klaytn.

Based on intended purpose

Based on purpose, there could be several categories of DApps, but not limited to:

Decentralized finance (DeFi)

• Lending and borrowing: Users can lend their cryptocurrency holdings to earn interest or borrow assets through platforms such as Aave and Compound.
• Decentralized exchanges (DEXs): Users can exchange cryptocurrencies on platforms like Uniswap or SushiSwap without needing a central authority.
• Stablecoins: DApps that create stablecoins, like DAi (DAI) about fiat money, such as MakerDAO.
• Yield farming and staking: Users can receive rewards on Yearn.finance and other platforms by offering liquidity or staking their assets. 

Gaming

• Blockchain-based games: Games such as Decentraland and The Sandbox offer virtual worlds where players may purchase, trade and construct on digital land.
• Collectible games: In games like CryptoKitties and Axie Infinity, players collect, breed and trade unique digital assets in the form of NFTs.

Marketplaces

• NFT marketplaces: Platforms like OpenSea facilitate purchasing, exchanging and selling NFTs, representing the ownership of unique digital items like virtual goods, collectibles and artwork. 
• Decentralized marketplaces: DApps like Origin Protocol offer platforms for creating and running decentralized markets where people can buy and sell goods and services directly from one another instead of going through intermediaries. 

Social media and content creation

• Content platforms: DApps like Steemit provide content creators with more flexibility and revenue possibilities by enabling them to share their work and receive cryptocurrency rewards based on user interaction. 
• Social networks: Decentralized social networks prioritize content ownership and user privacy, allowing users greater control over their personal information and lowering the possibility of censorship. 

Governance

• Decentralized automated organizations (DAOs): Platforms that facilitate establishing and administering DAOs, wherein stakeholders collaborate to make decisions, ensuring more open and democratic governance procedures. 

Identity and privacy

• Identity verification: DApps that provide decentralized identification solutions let users securely manage their personal data and authenticate themselves without depending on centralized authority. 
• Privacy tools: DApps with a privacy focus let users transact anonymously on the blockchain, protecting their financial privacy and personal data.

Supply chain

• Traceability: Platforms like VeChain provide solutions for tracking and verifying the origin and other supply chain processes of various products, ensuring transparency and authenticity.

Did you know? Decentralized finance (DeFi) is the dominant category of DApps, with protocols offering lending, borrowing, trading and other financial services.

Regulatory evolution regarding DApps

DApps are decentralized applications spread across the internet and not tied to any specific location. This causes challenges for regulators, who usually govern centralized entities. 

We have seen companies, like Facebook and its app, get into trouble with Senate hearings in the US as lawmakers go after the entity controlling the software. 

This is much more difficult with DApps as there is no company to legislate against. However, a controversial case involving a crypto mixer called Tornado Cash (a DApp) made the news, with one of its developers getting arrested because of what it enabled bad actors to do. 

In 2022, Dutch police arrested Alexey Pertsev, a developer behind Tornado Cash. He was accused of money laundering because Tornado Cash was allegedly used to launder funds worth over $1 billion. The case showed the increasing attention governments are paying to privacy tools in the crypto world and the potential legal trouble faced by those who created them.

DApps are a gray area when it comes to accountability. The regulatory landscape is gradually evolving to accommodate the unique characteristics of DApps.

For example, the EU’s General Data Protection Regulation (GDPR) requires compliance from all DApp providers, regardless of where they are based. Additionally, compliance with Anti-Money Laundering (AML) laws has become crucial to safeguarding investors engaging with DApps.

Even non-financial DApps must adhere to consumer privacy and data protection laws. Thus, regulations around DApps are constantly evolving, with a growing focus on protecting users and ensuring compliance.

Scams surrounding DApps

Although DApps benefit from decentralization, which protects them from issues like a single point of failure and biased decision-making, scams associated with DApps remain a concern. 

One scam that frequently targets users is phishing attacks, where bad actors deceive them into disclosing their private keys or seed phrases. Scammers use the stolen credentials to access users’ funds and assets.

Scammers are even using clever AI tricks to create messages that seem real. This fools people into giving up their secret codes or engaging in risky transactions on the DApp.

Another prevalent DApp scam is the rug pull, where fraudsters give up on a project after raising funds through a token sale or initial coin offering (ICO), leaving investors with worthless tokens. 

Then, there are Ponzi schemes that promise high returns but ultimately rely on new investments to pay off earlier participants.

Scammers also exploit weaknesses in a DApp’s code to steal digital funds from users’ wallets or change the quantity of a token they own. Plus, some DApps spread malware that could steal private data from users.

To prevent scams, users must keep up with the most recent security updates and exercise caution while opening emails. They should always check that a DApp is authentic before using it. They should be careful about unexpected offers and never share private information, such as passwords. Finally, they must add an extra degree of security by utilizing the DApps’ built-in security capabilities.

Fast facts about DApp scams

• Crypto losses amounted to $1.9 billion in 2023. 
• The frequency of such incidents rose by 17.3%. 
• The same year, phishing scams in crypto involving DApps resulted in nearly $300 million from 320,000 users. 
• Wallet drainers alone stole $295 million from about 342,000 victims.

The future of DApps

As technology advances, DApps will overcome their current challenges, becoming faster, more accessible and more user-friendly. These improvements will revolutionize industries, promoting greater transparency and openness online.

As DApps evolve and address their issues, their positive impact on the digital world and society will be immense. The expanding DApp-driven digital economy shows that DApps are not just a trend but the future of online interaction. The effects of this transformative technology will be felt for many years.