Decentralized Applications - dApps - represent a friendly interface that allows users to access software built on blockchain. Specifically, on a blockchain that is capable of running smart contracts.
Before blockchain technology appeared, one had to rely on centralized networks to host software, commonly called applications. Then, one had to rely on a single company to run the cloud network for the app to function or receive updates.
Decentralized applications mark a drastic departure from this approach thanks to blockchain networks such as Ethereum, Solana, Polkadot, Cardano, Algorand, and others. These are general-purpose blockchains that don't merely produce cryptocurrencies like Bitcoin. Instead, they are programmable decentralized infrastructure running smart contracts.
Smart contracts provide a degree of coding flexibility for dApps to be built. However, dApps only serve as a frontend code to access smart contracts. Accordingly, dApps can be coded in any programming language, as long as the frontend makes calls to backend - smart contracts.
For instance, when you visit an NFT marketplace like Rarible.com, you see a dApp that looks like a normal web page. However, that page is tied to backend blockchain operations. If you want to buy an NFT, you would have to first:
- Connect your wallet, usually MetaMask, to the Rarible dApp
- Pay ETH gas fee for the transaction
Then, your purchase would be forever added to Ethereum's blockchain as a new data block. Ethereum's smart contracts would handle those backend tasks, while dApp would make it intuitive to initiate the tasks.
One could say that Bitcoin was the world's first dApp, with its only function to facilitate cryptocurrency transactions. Since then, smart contracts have vastly expanded dApp usage scenarios into Decentralized Autonomous Organizations (DAOs), business and logistics management, decentralized banking services in the form of yield farming, insurance, blockchain gaming, and many other use-cases.
Decentralized Applications are commonly open-source, allowing anyone to develop and host them on the aforementioned programmable blockchains. Ethereum is the king of dApps, hosting about 3,000 dApps, with the highest number of developers. Accordingly, its dApp market share overshadows its competitors by a large margin.
Source: The Block, debank.com
dApps that are focused on replicating banking services are called DeFi dApps, with DeFi standing for Decentralized Finance. As of September 2021, Ethereum alone had over €82.81 billion gross value of crypto assets locked into these DeFi dApps. Some of the most popular ones are Aave, Maker, InstaDApp, Uniswap, and Curve Finance. Among NFT marketplaces, the most popular ones are OpenSea.io and Rarible.com. When it comes to blockchain gaming, the most successful dApp is Axie Infinity, having generated €409.825 million in revenue since July 2021.