In a previous article we discussed Decentralized Autonomous Organizations. A governance model to be truly decentralized must be based on apps that are not controlled by a central authority: hence the emergence of dApps.

What links dApps to the Blockchain is a strong interconnectedness. dApps leverage Blockchain platforms and their distributed network, but at the same time a truly decentralized Blockchain project can only be based on a dApp.
Traditional app developers in order to be able to offer optimized products and succeed in promoting them have to pay high fees to marketplaces such as Google Play Store or Apple Store. The payment system is also facilitated and easily integrated into the apps in the aforementioned centralized marketplaces. However, the crypto economy has begun to disrupt this paradigm: dApps leverage the native Blockchain system for asset transfer, this allows them to be able to integrate payments without having to depend on any marketplace.
Another advantage offered by dApps is the ability to access the platform by linking to one’s digital asset wallet: this means fewer credentials to remember and less data to transfer to register. Finally, all data is distributed among the various nodes of the Blockchain and does not reside in a specific server, making it almost impervious to cyber attacks and data fraud. The parent platform of dApps was Ethereum‘s, through the use of the Ethereum Virtual Machine (EVM), the first to enable the use of Smart Contracts.

The benefits of decentralization

Uniswap

The decentralization on which dApps are founded gives rise to advantages that until yesterday were unthinkable on traditional apps. Everything that takes place within dApps is governed by Smart Contracts and there is no authority that can succeed in changing what has taken place within them. This is due to the property of immutability inherent in Blockchain technology. Assets that are purchased on a dApp can easily be moved to its connected wallet or to another wallet that supports the tokens on the dApp and, through the wallets, to another platform.
This was impractical on centralized dApps.
Interoperability amongst different platforms can only be guaranteed by the Blockchain, many of the future initiatives will be based on this principle and will be one of the main reasons to lean toward implementing a project using this technology. The user who purchases an asset on a dApp will be able to have knowledge of the meaning of digital ownership.

Early uses of decentralized apps

As we know Blockchain has its roots in the financial market. The first dApps were developed to give rise to the so-called DEX i.e. Decentralized Exchanges. Even today, the largest volumes of dApps, in terms of economics and number of users, are registered on decentralized exchanges. Among the most famous are Uniswap, which through a mathematical formula linked to a Smart Contract gives birth to an Automated Market Maker (AMM), whose primary task is to set the price of assets in real time through oracles. DEXs are widely used mainly for two reasons: first, to avoid the KYC (Know Your Customer) procedure that requires sensitive user data, now mandatory for centralized exchanges (CEXs) such as Binance or Coinbase; second, to have access to financial products restricted by CEXs in some countries, such as derivatives in Italy.

dApps and sports: in which segment will they be able to be used?

As mentioned before, dApps first found application in Decentralized Finance (DeFi) platforms. The scope of sports betting does not differ much from decentralized finance: it is possible to bet on one of the teams to win, as if they were two assets with two different Liquidity Pools (LPs). An oracle activates the call function of the Smart Contract based on the final result determines the winning team, based on the stake invested on the winning team the profits paid from the liquidity pool of the losing team or player will be distributed.
One of the most interesting projects, representing a hybrid of DeFi and Sport Betting, is that of ScoutX, a platform based on Polygon’s blockchain. To date, it is possible to bet and earn by predicting the future earnings of tennis players, again the operation will be governed by an Automated Market Maker activated by an oracle, as is the case with decentralized exchanges. The project to date is limited to tennis but is set to reach many other sports by 2022. This new frontier of Sports Betting proposes a reimagining of the platform with the role of the counter setting the odds for the matches in the schedule. With the use of dApps, the platform acts only as an intermediary, creating a Peer-to-peer link and earning from the commissions generated from the trades made.

dApp, universal or limited use?

dApps represent the technological substrate that enables the full functionality and exploitation of the features that are made available by Blockchain technology. However, the use of dApps cannot universally replace that of centralized apps. In cases where the identity of a user needs to be verified, the data will need to be stored in a centralized database that can be accessed by a central authority.
Everything executed on dApps is processed through transaction approval; a large number of transactions can end up congesting the network by slowing down the execution of operations on the dApp. Another limitation of dApps may be the difficulty of offering the same quality standards for user experience that are offered by traditional centralized apps. For some users, who have no other experience in the Blockchain world, it may be difficult to configure the various tools they may need to securely interact with the Blockchain.

Thus, dApps also have limitations and disadvantages: one must be aware of how they work to be able to define when their use is useful and when it is a limitation. Certainly they can be useful platforms for easily integrating Smart Contracts that enable all the various transactions. In addition, it will be possible to avoid give one’s data if the activity performed does not make it necessary, opting for a dApp rather than a centralized app.

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Davide Calderone

Contributor