Definition of Dapp
While terms such as ‘blockchain’ and ‘cryptocurrency’ are words you commonly hear, others such as ‘Dapp’ may sound less familiar to the ear.
So, what is it?
A Dapp (pronounced Dee-app), simply refers to a decentralized application.
It’s a platform that connects users and providers directly and doesn’t require a middleman to manage the platform’s information.
Other main characteristics include the fact that Dapps are open source, anonymous and do not have a central point of failure. A Dapp also must run on a decentralized, public blockchain and requires a cryptographic token for access.
Furthermore, Dapps don’t have to just be for investing. With Dapps, one can perform a host of other online activities, such as sign a legal document or register a domain name.
The possibilities are endless.
Types of Dapp
In all, there are three main types of Dapp.
- Type 1: Dapps that have their own blockchain (i.e. Bitcoin)
- Type 2: Dapps that use the blockchains of Type 1 to carry out their functions; they also have their own tokens (i.e. Omni Protocol)
- Type 3: Dapps that use the protocols of Type 2 to carry out their functions (i.e. SAFE Network, which uses Omni to issue ‘safecoins’)
As previously mentioned, a huge aspect of Dapps is that they are decentralized. In other words, no one person or entity should own them, and a monopoly of any form is a strict no-no.
As such, for Dapps to function, they need to find ways of establishing consensus within their respective communities.
To do so, they rely on two main mechanisms: Proof of Work (PoW) mechanism and Proof of Stake (PoS) mechanism.
For the PoW mechanism, decisions pertaining to changes in a Dapp are made “based on the amount of work that each stakeholder contributes to the operation of the Dapp”.
As for the PoS, said decisions made are based on “percent ownership that various stakeholders have over the application”. Case in point, a stakeholder with a ten percent stake in tokens will carry ten percent of the weight in the decision-making process.
However, both mechanisms aren’t mutually exclusive. For example, Peercoin is one such Dapp that runs on both the PoW and PoS mechanisms.
On the issue of token distribution, tokens can be given out based on three of its own mechanisms.
- Mining: Tokens are distributed in proportion to work contribution (the more contribution one makes, the more tokens they receive)
- Fundraising: Tokens are distributed in proportion to the amount of a stakeholder’s initial investment (the more funds one invests in the beginning, the more tokens they receive)
- Development: Tokens are generated using a “predefined mechanism and are only available for the development” of a Dapp
Why is Dapp important?
There are a few reasons for this. First, Dapps have value. They can not only cut out the middleman but through this, create a more trustworthy consensus.
Many also feel that the systems of older industries (retail banks, insurance, finance exchange platforms) are either broken or inadequate.
With Dapps, they can serve as a better alternative to these traditional systems.
One such example of this is 4G Capital, a Dapp dedicated to providing credit loans (micro-financing) to small businesses in parts of Africa (Kenya, Rwanda, and Uganda). Through it, donors can sign smart contracts and fund businesses with digital currency.
The money lent will then be converted using 4G Capital’s system, which is based on a predictive machine learning algorithm.
In a nutshell, the platform doesn’t involve banks or social media. It directly links beneficiaries to donors who believe in the development of the African economy. Think a fintech version of Grameen Bank – minus the bank.
DIY your own Dapp
If the above sounds interesting enough, perhaps you might be interested in establishing a Dapp of your own.
If so, here are the steps you’ll need to take –
- Release a white paper detailing the Dapp’s features, goals, mechanism(s)
- Get feedback from your community
- Work on the feedback you received and make revisions
- Set a date for a crowdsale
- Distribute tokens (the process will be different, depending on whether your mechanism of choice is mining, fundraising or developing)
- Simultaneously execute your idea and develop the plan
To end, Dapps show massive potential. They represent a new way of doing things and can serve as a massive disruptor to conventional industries.
Some might further suggest that should Dapps be mainstreamed, the decentralized aspect of the platform would put more power into the hands of users and providers alike.This in turn, will create a more reliable system for us all.
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