Today, before we focus on the main topic of ours regarding the decentralized application and go into details regarding its functionalities and other vital aspects, it is better to first start with what the term “decentralization” actually means in order to get a better understanding for the following topic.
The Meaning of Decentralization
If we go by the book, “decentralization means simply the transfer of authority and responsibility for public functions from the central government to subordinate or quasi-independent government organizations and/or the private sector is a complex multifaceted concept”.
In plain and simple words, decentralization is the transfer of decision making power, capabilities, and assignment of accountability, and responsibility for results with equal power from top to the bottom with no centralized authority responsible. Now accordingly, there are three different degrees of decentralization. They are:
Now coming back to our main topic, we first try to get an idea of what this decentralization application is all about and how does it affect the cryptocurrency trading in brief.
Decentralization Application and how it works?
Decentralized Application or DApp, in short, is an open source application that operates autonomously on a decentralized public blockchain. It cannot be controlled by any single individual or single entity and it generates token and uses them by following a standard algorithm based on cryptography.
Now to make it read plain and simple, we try to break it down into its individual parts and components. A DApp or a Decentralization application needs to be open source which means that anybody can look at the code from where it has all started or the source code in short.
This prevents anybody from hiding anything inside that source code. This pretty much varies from that of the closed source software where anybody could simply be made do modifications and some people may not know what is inside. So by default, DApp need to be open source. Additionally, DApp needs to be able to operate autonomously.
It means that once a DApp is set in motion it needs to run on its own without any tampering or interference by any third parties and simply run on its own running on a public blockchain. Here anybody can participate in the usage of this decentralized application process. This is different from a private Blockchain where participation is very much limited. In a private blockchain, one can set permission for specific users.
What is blockchain?
It is very important to know side by side what blockchain is all about as it is very much related to the decentralized application. Thus we try to find out what blockchain is really about in short.
The blockchain is a very new technology that allows recording of the blocks of data and is stored in a chain. Once each new block is added it simply creates a digital ledger without any interruption in between the process. As it is mandatory for each and every transaction to be validated by the network, a minimal of 51% of the nodes must be approved in order to complete the chain process.
The transaction described above is done independently without any input from outside sources and thus provides more security and safety to the whole process.
Criteria for Decentralization Application:
A DApp or Decentralized application must have no single entity that actually makes the decision for it and no single entity can control the majority of its tokens. In the case of Bitcoin, any changes need to be done in consensus with the network. No single entity has the ability to make changes to the Bitcoin without any CEO of Bitcoin. This is the same for DApp.
DApp must operate and generated using tokens. We talked about Bitcoin and the case for anybody to be able to use Bitcoin; they need to have Bitcoins as what you send and receive, but also new Bitcoins are generated by the miners.
This is how they are actually compensated for processing and confirming the transactions and finally, those tokens need to be generated using a standard cryptographic algorithm. The algorithm implies something like a proof of work which is using Bitcoin and there are other ones as well and that is how you define.
There are certain highlighting points of DApp which are as follows:
- The Decentralized application can easily run on the blockchain.
- The Decentralized application generates tokens that provide a value to the contributing nodes.
- The application provides open-source codes that work autonomously without the interference of any groups or an individual controlling most of the tokens.
- When miners successfully contribute to the ecosystem then they are rewarded with tokens in return.
- Users taking part in the blockchain process are granted access in exchange for the tokens.
Few advantages of Decentralized application:
Hereby we try to figure out some of the advantages that the decentralized application provides to the users in short.
- By the user of Decentralized application or DApp, the users can easily transact directly with cryptocurrencies.
- The overall process is quite unique and remains transparent for all the users taking part in the process without any single point of external intervention or tampering of the process by any means.
- By the process of decentralized application, public record on the Blockchain is created which simplifies the blockchain transaction and makes it easy for the users or third party to audit the information.
The future of decentralized application looks quite bright. The advantages that the user is getting in the process make it more convenient for the users to use with a more transparency and without any complication. Unlike a centralized application, it has multiple points of interaction and possesses a high level of security.
With the increasing amount of popularity of DApp or decentralized application today, it has been estimated that there have been 1,600 DApps in operation which ranges from games, finance, and governance along with well known Ethereum and Bitcoin cryptocurrency.