When you think about cryptocurrency, the first coin you think of is probably Bitcoin (BTC) since it’s the most popular digital asset in the crypto world. In recent years, global interest in Ethereum (ETH), the second most popular digital currency on the market, has been constantly growing. Not only because of its monetary value but also for the way in which Ethereum is reconceptualizing digital applications as we know them. 

Since the publishing of the Ethereum white paper in 2013, the network has attracted more and more developers eager to use the full potential of the Ethereum distributed ledger’s decentralization policy.

The Ethereum blockchain’s functioning is closely tied to Dapps, which is an abbreviation for Decentralized Applications. In short, these applications are programs that run using a distributed peer-to-peer network for hosting, instead of being run by a centralized server in control of the app.

Let’s take a closer look at how the Ethereum blockchain works and what the functions of Dapps are.

Proof-of-Work and Ethereum Blockchain Technology

Since the Ethereum blockchain is a decentralized network with no central authority that controls its transactions, there has to be a method to ensure transfers are legit.

Proof-of-work is an algorithm used in cryptography that verifies transactions by simply having one network participant act as the prover and other participants as the verifiers who confirm the validity of the transaction by using a minimal amount of computational power. This type of verification is exactly what enables trust in smart contracts and decentralized apps, making the operating system function smoothly and without any central administrators.

Smart Contracts and the Ethereum Blockchain

The Ethereum blockchain works as a network protocol that enables users to initiate and run smart contracts. These smart contracts are a technological innovation introduced by Ethereum back in 2015. The purpose of smart contracts was to provide users with far more opportunities than just financial transactions such as exchanges or cashouts of ETH. These contracts are essentially really simple and their point is to allow two interested parties to enter a business agreement that is solely based on the conditions they agree upon. 

The use of smart contracts eliminates the need for a broker who defines the contract conditions. There is no centralized system of authority or hierarchy that defines the agreement apart from the two interested parties. All sorts of digital middlemen are eliminated from the equation and interested parties can reach agreements directly with each other.

Therefore there aren’t any commissions or fees otherwise paid to the exchange platform or broker. The only thing you pay as a smart contract user is the Ether transaction fee known as a gas price, and that is it.

Smart contracts can be used for numerous online tasks and agreements such as lending fiat money, buying online goods, booking travel arrangements, paying services, etc.

These smart contracts are the force behind dapps, powering the decentralized application ecosystem.

How Does a Decentralized Application work?

For users of decentralized applications, a dapp looks the same as any random application or website, because you see the standard frontend of the app. The frontend code with the entire user interface can be built with any usual programming language. The difference is in the backend development section of the dapp, which runs on smart contracts.

Dapps are built on the Ethereum blockchain, which is a decentralized network with no central authority, and they use programming languages native to Ethereum, such as Solidity. Of course, dapps are open-source.

Decentralized applications allow both developer and user autonomy in creating and using applications catered to the needs of users independently of all the privacy-related issues that accompany centralized applications. Centralized applications have a central server authority and utilize the user data in ways you can’t control, so you have to accept their terms of use, even though the data may be used for sending you advertising and notifications you don’t really want to see.

Dapps eliminate this issue and you don’t have to worry whether your browsing habits and shopping preferences or your financial status are going to be sold or used by a third-party data company.

In the event that the central server of a centralized app like Facebook is shut down or temporarily blocked by a cyber attack, the whole network will go down until the issue is resolved. Dapps use a decentralized network of computers which means that if part of the network is jeopardized, the app will continue to work using a different part of the network.

How Dapps Are Changing the Internet

These decentralized applications have numerous use cases. When you check out the Dapp section on the official Ethereum website, you can see different categories including gaming, finance, technology, art, and collectibles. The applications range from entertaining games to useful financial tools for trading your crypto like Uniswap or Oasis digital asset processing programs, and decentralized crypto-friendly browsers such as Brave

Dapps allow startups worldwide to utilize open-source, trustless technology based on smart contracts to create real-world change in the form of user-friendly programs with backend code running on the Ethereum network. In the startup culture, scalability is always an issue and dapps provide the opportunity for small developer teams to bring their vision to the online community and potentially scale up.

A Few Words Before You Go…

The internet is evolving at a fast pace and dapps are playing a key role in the development of Web 3.0 which gives the promise of a fully decentralized internet experience with user freedom and privacy as its core values. When you are using Ethereum-based technology and utilizing dapps, you are contributing to this next stage of web and defi development.