With the advancement of crypto technology, a new thing is taking place. The first sets of Ethereum DApps are being released. Ethereum was first released in 2015, and it provides a platform which developers can use to build their own applications. The best part of this is that it has quite minimal risks of downtime, interference from third parties and restrictions.
Consequently, this has led to the rise of Initial Coin Offerings (ICOs), where lots of Ethereum-based tokens are being sold before they are even launched.
There are lots of new crypto startups that are more than ready to take your money during ICOs, while in reality there are not that many DApps that are being actively used. It’s only a couple of DApps that have been able to attract the interest of thousands of people and get used on a regular basis.
Such DApps have some common factors. The top five are Idex, ForkDelta, Bancor, CryptoKitties, and LocalEthereum. These DApps provide a platform where cryptos can be traded even though the platforms have different business models. For instance, they can be an exchange or a game and market marker.
Some of the best DApps provide an intuitive user experience, which is something that a lot of DApps struggle with. One of the co-founders of Local Ethereum stated that they deliberately designed the app to look like a normal website.
Other professionals in this industry agree with these sentiments. For instance, Nate Hindman, who’s the director of Communications for Bancor, stated that their app was built with simplicity in mind. One of the co-founders of CryptoKitties, Bryce Baldon, thinks that one of the reasons why their app was so successful was the fun and interesting way in which it worked; therefore it was able to introduce users to cryptocurrency in a simple way. For instance, by using cat puns.
The other thing that makes these apps easy to use is that you don’t even have to use native tokens. For instance, Bancor and Aurora Labs have carried out ICOs, but it was not a must for users to own these tokens.
Even if you look at the apps which are said to be relatively successful as a result of having hundreds of thousands of users, this is very small as compared to platforms like Facebook, which have billions of users who use them every day.
Hindman attributed this to the lack of infrastructure that’s still at the startup stage when it comes to DApps. It takes a lot of resources to develop up apps that are decentralized and are run like consumer apps.
The same sentiments are echoed by Bladon. He states that it would be quite a challenge for decentralized apps to outperform centralized apps, especially when it comes to convenience. Centralized apps are faster, and people are used to them. For instance, it would cost Ethereum 150 million times more to process things the same way that Amazon Web Services do.
According to Bladon, one of the possible, key reasons why Ethereum apps have only hundreds of thousands of users instead of millions or billions is because people have a hard time dealing with computations that they can’t trust. In any case, DApps are still in the startup phase. However, great progress is being made in the development of blockchains such that they will be able to achieve their goals pretty soon, according to Hindman. Also, consumers are becoming more aware of the advantages of decentralization.
There’s a likelihood that users might move to decentralized apps as a result of lapses experienced with centralized apps and data breaches.
What is a DApp?
For any application to be considered a DApp (pronounced as Dee-app), it must meet certain requirements:
- It must be open sourced software. It should be independently operated with no single person or unit controlling most of its tokens. Any changes that are made to the app must be consensual from its users depending on market demand and feedback.
- To minimize chances of failure, information and records of operation are required to be cryptographically stored in a public blockchain.
- It’s compulsory for the software to use a cryptographic token to access the application. Any rewards given to farmers or miners must be in the form of tokens.
- It should be possible to generate tokens based on a standard cryptographic algorithm acting as proof of the worth nodes that are contributing to the software. For instance, Bitcoin uses the Proof of Work algorithm.
How DApps Are Classified
DApps can be classified into different categories based on the specific features that they have. Here, we will categorize DApps based on whether they are using their own blockchain or they are using the blockchain of another DApp.
Based on this, there are three different kinds of DApps:
- Type I Decentralized Apps – These have their own blockchain with Bitcoin being the most famous example. However, even Litecoin and other ‘altcoins’ fall under this category.
- Type II Decentralized Apps – These apps use type I decentralized apps blockchains. Type II decentralized apps are protocols, and they also have tokens, which make it possible for them to work. An example of Type II decentralized app is the Omni Protocol.
- Type III Decentralized Apps – These apps use the blockchain of Type II decentralized apps. Type III decentralized apps have protocols and tokens that make it possible for them to work. For instance, the SAFE Network is based on the Omni Protocol which issues ‘safecoins’. Safecoins can be used to purchase distributed file storage.
You can think of a Type I decentralized app as a computer operating system, such as Windows, Linux or Android. Type II decentralized software is similar to a software program used in computers, such as word processing applications or a file synchronization system like Dropbox. A Type III decentralized app is similar to a dedicated app solution, such as mail merge, which works with a word processor or a blogging platform that makes use of Dropbox. Based on the parallels that we have drawn here, it’s quite likely that as a result of the network effects and the ecosystem that surrounds every decentralized application, there will be lots of Type 3 decentralized apps, some Type II apps and quite a few Type I apps.
It’s essential to point out that there are some good quality open-source apps that make use of Type I apps. For instance, Colored Coins and Coin Join have been based on the Bitcoin blockchain and have several useful features that users will like. However, because these apps don’t issue tokens, they cannot be categorized as Type II decentralized apps. These projects can go on as a result of the generous donations made by interested people.
There are two popular ways by which DApps can get consensus. This is through Proof of Work (POW) or Proof of Stake (POS).
When POW mechanism is used, decisions on the changes that are to be made on the DApp are based on how much work each stakeholder puts in when it comes to running the DApp. This is the tactic that Bitcoin uses for its day-to-day operations. This mechanism, where consensus is established through POW, is referred to as mining.
When it comes to POS, decisions about which changes are to be made on the DApp are based on the percentage of ownership that each person has. For example, if an investor owns 10% of the tokens issued, then it means that they also own 10% of the votes.
It is possible to use the POS and POW mechanism parallel to each other. PeerCoin does this. The advantage of doing this is that the resulting DApp will use far less energy than if it was just based on one mechanism. Also, the DApp will be able to resist 51% more attacks than if it was based on a single mechanism.
Top 5 Ethereum DApps
The basis of choosing these best five apps has been derived from DappRadar. This selection has been made based on the number of active users on a daily basis.
By the time we were writing this article, Idex had 6,479 users. This makes it one of the most used DApps.
This is a decentralized exchange that was developed by Aurora. Aurora has developed some financial service DApps. Idex was launched in October and experienced a very fast growth. This is according to statements made by Alex Wearn, Aurora’s CEO, during his podcast with Craig Cobbs. You can trade ERC-20 tokens and Ethereum using this platform.
During this podcast, Wearn explained that bigger exchanges such as Binance, Kraken, and GDAX leave the exchange operator to control the cryptocurrency completely. However, this comes with the possibilities of getting hacked or being robbed.
On the other hand, Idex uses a smart contract that can be publicly verified. According to Aurora’s whitepaper, Idex is not totally decentralized. Idex uses a centralized server during various stages of the process, like when it comes to lining up transactions in the order book. However, according to the whitepaper, there are future plans to decentralize the platform.
By the time of writing this article, ForkDelta had 2,221 users. It’s a decentralized exchange where Ethereum and ERC-20 tokens are traded. This is a project that was started by Arseniy Ivanov as a fork to EtherDelta, which is also a decentralized exchange. But due to differences in opinion with his fellow co-founder Zack Coburn on the direction that EtherDelta should take, the two parted ways.
ForkDelta has a centralized order book, but they plan to decentralize this aspect and their hosting in future. Meanwhile, ForkDelta still uses Ether Delta’s smart contract. Consequently, fees on the ForkDelta platform go to EtherDelta.
By the time of writing this article, Bancor had 560 users.
Bancor is a market marker where users can exchange ERC-20 tokens with Ethereum. But this platform doesn’t work as an exchange because it doesn’t match up buyers with sellers. Instead what happens is that Bancor’s protocol provides liquidity in the form of smart tokens. According to Bancor, this provides a built-in liquidity mechanism through smart contracts.
Bancor got $150 million as a result of selling BNT, the first of these smart tokens, during an ICO.
By the time of writing this article, CryptoKitties had 408 users.
CryptoKitties was originally a part of Axiom Zen, but it split from it in March. Its use peaked in December, after which its user base reduced by 97%. This is a game where users can collect, breed and trade in cats that cannot be duplicated. In reality, these are actually ERC-721 tokens, which are based on the Ethereum platform and according to Arthur Camara, CryptoKitties co-founder, they can be used to tokenize real-life assets such as real estate and art.
Even though in CryptoKitties whitepaper states that it’s decentralized, this might not be true. This is given the fact that most of its users access the game through its smart contract. Also, the game is operated from a centralized database and is mainly operated from a single internet portal, which is the CryptoKitties website.
By the time of writing this article, LocalEthereum had 236 users.
LocalEthereum provides a platform where individual traders can trade Ethereum. LocalEthereum has a smart escrow contract where Ether tokens are released to the buyer only after the seller confirms that they have received payment for the tokens. The payment can be made face to face, through bank transfer or another method.
In case any disagreements arise, an arbitrator, the one specified in the smart contract, will intervene. The arbitrator will decide who gets the tokens, either the buyer or the seller, but he can’t award the tokens to himself.