Decentralized Apps (DApp) unlike traditional applications such as Instagram, Uber and Bank Applications, which run on servers owned by one company, DApps function on decentralized networks, and no one single company or organization has complete control over how these applications operate.

For an analogy, using the restaurant: A traditional application is like a restaurant where the owner of the restaurant determines what food will be served, how much the meals are, and who will and will not be served. A DApp can be viewed as a community potluck, where everyone brings a dish to share, and everyone follows the agreed-upon rules; however, no single person is the head of the potluck.

How Do DApps Work? A Step-by-Step Breakdown

You need to authenticate by connecting your cryptocurrency wallet. A wallet acts as an entry pass for the user to access and use the decentralized application. Rather than providing a username and password via email, users simply connect their wallet.

The user sends a transaction by making a request to the DApp through the smart contract. As an example, if the user wants to exchange tokens using Uniswap, the user types the token amount they wish to exchange and clicks the swap button. This triggers a transaction that gets sent to the smart contract.

Types of DApps: The Essential Categories Every Crypto Trader Should Know

DeFi DApps (Decentralized Finance) are designed to enable transactions using the internet without requiring banks. A decentralized exchange (DEX), such as Uniswap, allows peer-to-peer cryptocurrency trading. Aave and Compound enable earning interest on deposits or borrowing money based on collateral, while dYdX enables leveraged crypto trading. In other words, DeFi allows users to generate interest on their assets without using a traditional banking system, enabling people worldwide to transact with one another.

GameFi DApps (Blockchain Gaming) allow players to have undivided ownership of their in-game assets in the form of non-fungible tokens (NFTs). For instance, Axie Infinity introduced the idea of a gaming business model based on players earning cryptocurrency as a reward for playing games. Some GameFi DApps, such as The Sandbox and Decentraland, provide users with virtual spaces to create economies. In basic terms, GameFi provides players with the opportunity to own assets within a digital environment, allowing them to earn money from selling those assets.

Why DApps Matter: Key Advantages for Traders, Investors, and Everyday Users

Tokens align users and supporters with DApps. Developers often reward users of their DApps by giving them ownership in the form of tokens. An example is Uniswap’s recent airdrop giving early users $1,200+ of UNI tokens. The token ownership model creates an opportunity for community involvement and growth in a way that has never been offered by a traditional company.

The advantages of using DApps for traders includes having control of their funds when engaging in non-custodial trade activities, the ability to trade 24 hours per day for 7 days a week (no downtime), and typically have lower fees compared to centralized exchanges.

Ready to Explore the DApp Revolution

The world of decentralized applications is growing rapidly. There are many legitimate opportunities available right now to benefit from. Whether you are interested in trading more efficiently, discovering alternative investing strategies or understanding where blockchain technology may lead.

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