What are dApps?
We all know that our phones can have many different applications like Facebook, Instagram, Gmail, and YouTube. These all are applications that run code that was created by the company so that you can interact with their company. A decentralized application system known as dApp is very similar in how it works. Instead of reporting it back to Facebook servers or Tiktok servers, they report back to the blockchain. You are simply interacting with the blockchain through the application.
Benefits of dApps
Users can only build dApps on smart contracts. This means a blockchain like bitcoin cannot utilize dApps. Bitcoin was designed only to allow the sending of its native coin Ethereum. However, it can use something called smart contracts, which is code that makes up a program to be run to do more complicated things. Smart contracts allow two people to make an agreement written in code so that they don’t have to trust a third party to follow through, and they can trust the code. Another benefit is that since the code is out there to be run, it is open-source, which means anyone can look at the code. This allows a lot more trust to be given to the application.
With any smart contract, we can look at the code and see how it works. This is a significant benefit over centralized applications. dApps are also censorship-resistant, and this is a fancy way of saying they don’t have to answer to governments or corporations or even specific people. If the smart contract is coded to do something and it’s triggered, nobody can stop it. Naturally, this is good and bad, but it’s vital for financial applications. This way, nobody can control your money. In history, governments that have done many bad things have had control of their citizens’ money. There have also been cases where Facebook or Twitter can ban or censor certain people based on their views or opinions. A decentralized application will not allow this unless it’s written to. Another significant benefit of decentralized applications is that they will essentially never go offline. Now there have been times where Facebook or YouTube is down. Maybe their servers have a bug, or there’s an outage, or they do not work. It’s usually for a brief period because there’s a lot of money involved, but technically the government could come in and just shut them down. Since dApps run on the blockchain, they will never go down because they are run by hundreds of thousands of computers worldwide. It would be infeasible to turn them all off; it’s impossible.
DEFI Financial dApps
Many decentralized applications provide a way for people to invest in something called decentralized finance. Decentralized Finance or DeFi is a new monetary protocol that uses blockchain to allow investors to do new things and even some old stuff with their money with many unique benefits. There are some of the ways through which dApp can use your money. AAVE is a platform that allows a user to deposit their Ethereum or matic tokens to specific smart contracts. Whenever you deposit these coins and tokens, you can receive an interest rate, allowing you to invest with them. AAVE also lets you borrow tokens. If you have enough collateral already deposited without going too much in-depth, this will enable you to borrow at different interest rates and even create specific margin positions.
Another way is providing liquidity. So providing liquidity means there is not much money in the tokens out there to trade. So investors can come along, buy these tokens, and then invest them in a liquidity pool that allows other people to trade back and forth using their tokens. The traders pay a small fee that allows the investors to earn a return for their investment. It’s a win-win situation. Also, there are exchanges allowing traders to find a way to buy and sell their tokens is one of the issues in the decentralized finance world. Exchanges are decentralized applications that enable traders to take some of their tokens and trade them for another token. Usually with meager fees almost instantaneously and without needing any background checks or identifications verification. That was a mouthful, but it means that you can sell a million dollars of Ethereum without anyone blinking an eye or asking any questions. These exchanges are called Dexes which stands for Decentralized exchanges.
Programmers are the ones creating these dApps. So they are going to find a way to gamify the space. One game is the crypto kitties. Crypto kitties is a decentralized application that allows you to buy these cute little kittens. Technically what you are buying is the NFT data of rights to that token representing the kitty. However, the fun part of this game is that you can actually collect a bunch of these kittens and even breed them to create more kittens in the community. The older generation kittens are usually the most valuable, and you can sell them for a profit or maybe a loss. If you play the game for a long time, even more so, you can rent out your kitten to breed with someone else’s kitten as a strange form of passive income on the blockchain. The second game is called Zed Run. Zed is a gambling application. Since you buy NFTs that represent racing horses and then race them. Every horse has specific skills and a point system. Also, every race is recorded on the blockchain. So you can see all the races, including the races your horses have won or lost. This game went viral for a while because it combined the psychological pulls of gambling with the virality of a blockchain game. The third one is gambling. So just like Zed, it is a massive list of blockchain gambling websites that are technically dApps. These dApps allow you to play games like poker slots, dice rolling, or coin tossing. You can code the application, so the house always wins.
These are dApps but are usually centralized and hosted on a single web server and, in most cases, don’t require the blockchain-specific code to work; however, they read the data from the blockchain. Zapper.fi is a website like this. It is free to use and the entire portfolio on one page.