A decentralized application – or dapp – is like a digital app found on any smartphone or laptop, with the additional feature of employing blockchain technology to keep users’ data out of the hands of the organizations behind it. Just like cryptocurrency is decentralized money, dapps are decentralized apps.
Dapps are as varied as conventional apps: They can provide social networks, games, entertainment, productivity tools and so on. Many are designed as tools to help consumers access decentralized financial services, or DeFi. This latter function is so widespread that the Ethereum network white paper categorized dapps into "financial," "semi-financial" and "other."
Ethereum has been the dominant host for dapps so far. At its foundation, one of the primary goals of the network was to make dapps easier to create.
Dapp users may feel more secure in the knowledge that the creators of the application cannot control how it is used - at least, not in the conventional way. For example, the creators of a social network dapp are powerless to remove a post or exclude a user. They are also unable to sell users’ data to other entities because dapps run autonomously once they’re launched.
How is this possible? It’s all down to the use of smart contracts – computer programs deployed and on a blockchain designed to execute the rules of a contract without human involvement. For example, a smart contract could be coded to issue a loan once a user deposits a sufficient amount of collateral into it. Dapps are also commonly open source, meaning that anyone can view and use the underlying code.
Decentralized autonomous organizations, or DAOs, can be seen as a kind of dapp. They aim to use an intricate arrangement of smart contracts to achieve the functions of a traditional organization without the need for corporate executives and hierarchies. They determine policy entirely through a weighted voting system where members who lock away more tokens possess greater voting power. The idea behind this concept is that those who have committed more funds to a DAO will be more likely to participate in it honestly, for the good of the organization.