Despite the growing excitement around them, decentralized apps (dApps) are underdogs right now in terms of adoption. As of October 2021, dApps had about 226 million total users. Compare that to traditional apps, where social media networks alone had 3.78 billion total users in 2021. Yet, developers who take on the challenge of building dApps may be rewarded because not only are many consumers wary of Big Tech, but decentralized apps provide entirely new incentives for user adoption.
Decentralized Apps vs. Centralized Apps
The main differences between a decentralized app and a centralized one relate to ownership, data storage, and how users interact with one another.
Decentralized apps are open source. The codebase is distributed across the nodes of the blockchain, users interact directly with one another, and interactions between users are managed by smart contracts.
Centralized apps are owned by corporations. The codebase is stored on servers owned or controlled by a company, users don’t interact with each other directly, and interactions between users are managed and controlled by the company’s server, all behind closed doors.
Examples of decentralized apps vs. centralized apps
Even when both a dApp and a centralized app serve the same function, the dApp will be inherently more user-oriented, democratic, and permissionless. And that battle over permissionless vs permissioned apps, a battle between decentralization and centralization, is already happening in a number of different industries and types of applications.
- Stackswap vs. Robinhood (Financial services)
- Brave vs. Chrome (Browsers)
- Mastodon vs. Twitter (Social networks)
- Axie Infinity vs. FarmVille2 (Gaming)
What dApps Do Better Than Centralized Apps
While on the surface, the user experience between a dApp and a centralized app can be similar, they are quite different structurally and technologically. Here’s how those differences can benefit consumers, giving dApps an edge over centralized incumbents.
Decentralized applications create composability because their code is open-source. This means that anyone can see the code and contribute towards improving the dApp. Developers can also combine code from different dApps to create entirely new dApps much faster than it takes to start a new dApp from scratch.
For instance, in 2020, developer(s) known as Chef Nomi forked Uniswap’s code to create a competing decentralized exchange (DEX) called SushiSwap. SushiSwap added many community-oriented features such as staking, liquidity rewards, and governance tokens to Uniswap’s original idea. The community-oriented features on SushiSwap saw it getting more than $250 million locked within the first 24 hours — but above all, it showed how dApps benefit from crowdsourced innovation.
The fact that developers can easily access open-source code to improve existing dApps or create new ones leads to more composability, deeper collaboration, and faster innovation; all of which will fuel dApps to overtake traditional apps.
Enable a share of economic returns to all users
One of the unique features that give dApps an edge over centralized apps is how their economic models are designed to distribute economic rewards to all participants rather than a few owners of the app, such as the founders and early investors. In a decentralized app, users can buy, earn, and own the network tokens that the dApp runs on, and those tokens theoretically reflect the value of the dApp itself.
In other words, dApps can give users a vested interest in the application because their usage can make them an actual owner of the app!
Imagine if Uber gave Uber shares to drivers every time they completed a ride. It’s not a perfect analogy, but it illustrates the concept of ownership being distributed to users, according to their usage. It’s a powerful idea, and many dApps have this as a core mechanism. For example, Brave browser rewards users with Basic Attention Tokens (BAT) every time they watch an ad (effectively giving users some of the ad revenue) while using the web browser.
In contrast, users of centralized apps don’t get to participate in the value accrued by the network. That value only goes back to the app’s stakeholders. This gives dApps a superpower over centralized apps because they can give users skin in the game, which creates brand loyalty and sticky users who are incentivized to stay, to use the dApp more, and to spread the word. It unlocks the possibility to have a significantly stronger community.
Provide open access
Anybody from any part of the world could access and use dApps without prejudice (as long as they have an internet connection) because dApps are permissionless. There are no geofencing restrictions and fewer regulatory obstacles. Democratized access leads to a more equitable distribution of wealth, accelerates financial inclusion, and breaks down prejudices.
Centralized applications often make decisions about who can or can’t access or use their apps. For instance, PayPal excluded much of Africa from participating in its global economy for more than a decade, and now, it only maintains a one-sided relationship that allows people living in many African countries to send but not receive funds.
Compare that to anecdotes from dApps: Afghans can receive remittances after Western Union abruptly suspended services in the country, Nigerian creators can sell their art on the international scene without going through gatekeepers, and millions of Filipino people can earn income from a play-to-earn game. When the entire world can use your dApp, the growth ceiling is much higher than if you are only targeting US consumers.
Enable data portability
Data portability refers to the ability of users to access, extract, and move their data from one service to another in a structured, tagged, and machine-parsable manner. Decentralized apps enable data portability because users own their data, and ownership gives them the freedom to choose what apps to use.
For instance, if you use Spotify, the app will eventually understand your music preferences enough to suggest playlists you’ll like and suppress genres you can’t stand. However, if you switch to Apple Music, you’ll have to teach the new service your music preferences all over again. With dApps, users retain ownership and control of their data, and you don’t have to worry about starting from scratch whenever you switch apps that provide similar services.
Also, because users own their data, they can choose how that data is used or shared. While centralized apps often claim that you own your data, their terms of services include licensing clauses that give them liberal access to use your data as they see fit. For instance, both Facebook, Twitter, and many other social network sites have licensing clauses like:
“By submitting, posting or displaying Content on or through the Services, you grant us a worldwide, non-exclusive, royalty-free license to use, copy, reproduce, process, adapt, modify, publish, transmit, display and distribute such Content in any and all media or distribution methods now known or later….”
And their access to your data doesn’t stop even when you delete your posts or your account.
Facilitate community input and governance
Another feature that could help dApps displace centralized applications is their inherently democratic governance. Beyond simply using a dApp, the community is often required to participate in the decision-making process by debating and voting on new features, updates, and upgrades before they are implemented.
The depth of community participation enables the dApps to evolve in the best interests of the majority of users, unlike centralized apps where a handful of people in a corporation make decisions for all users. Sometimes, the people in charge make good decisions. Other times, they make bad ones, such as when Google made a unilateral decision to kill off Google Finance, citing a need to integrate updates about the financial markets into Google Search. Users had no say in the decision, and many amateur investors and financial services professionals who have spent years curating screeners, portfolios, and watchlists lost all their market data.
With dApps, users have a voice, and they can propose changes or vote against decisions that they do not like. More so, users that disagree with any decisions can choose to fork the dApp to create a version of the dApp that is not subject to those decisions. The governance also extends to peer-to-peer interactions as the community of users employs democratic principles to punish/remove bad actors without any user wielding too much power that could be abused.
Enhance user privacy and data security
dApps provide users with enhanced privacy because users do not need to create unique accounts with personal information for every app they use. Often the only requirement for using a dApp is for the user to connect their crypto wallet. Users can choose to have multiple wallets for multiple dApps (or just use one across all dApps), and they can choose to what extent any wallet or dApp account is to be associated/connected with their person.
On the other hand, centralized apps require users to create accounts with verified credentials, which are often stored in a database. Sometimes that database gets compromised. For example, in 2021, personal information for more than 700 million LinkedIn users was compromised and put on sale for a paltry sum of $5,000. The data leak contained a wealth of information, including full names, phone numbers, email addresses, physical addresses, gender, and other social media usernames. Those types of data breaches are not infrequent, but since dApps don’t require users to provide personal data on sign-up, there is no database of personal information to be compromised in the first place.
The data that dApps do collect and keep, such as transactions and transactional metadata, are stored securely on the blockchain and are pseudonymous. And while blockchains can also be hacked and their data overwritten, it becomes theoretically impossible to do so for established blockchains because of the computing and financial requirements to do so.
For example, you’ll need to spend at least $13.5B on mining equipment (if you could find it) and electric power to double Bitcoin’s existing hash rate to have a theoretically-viable shot at a 51% attack on the Bitcoin network. But the game theory dynamics of the Bitcoin ecosystem will make the attempt impractical. It’s more beneficial for the hacker to be an honest participant in the network than it is to follow through on the attack.
Traditional centralized apps are at the mercy of big tech, and big tech itself is at the mercy of governments and its agencies. Centralized apps must meet certain requirements to be accessible to users; otherwise, they risk being suspended, permabanned, or de-platformed (e.g. Apple removing the app from the App Store or GoDaddy shutting down their web hosting). Centralized apps can also censor users since there’s an administration with the power to remove/delete users’ content or accounts, such as frequently happens with centralized social networks that ban, delete, or remove users’ content.
dApps have censorship resistance features in that it is practically impossible to remove them from a blockchain network. Blockchains are immutable, and data stored on the blockchain can’t be deleted. Government or its agents can’t shut down blockchain networks once they are fully propagated. So, dApps hosted on a blockchain can continue to function for as long as the underlying blockchain exists.
Similarly, dApps can’t enforce censorship on users because the users’ activity is stored on the blockchain with read-only access rather than in a centralized database. dApps promote transparency because all blockchain activity is visible on explorers, and users can review what actions the developers and other stakeholders take on the dApp. Where edits are possible, they will be stored as new records, but the older records will still be available to interested parties.
Because decentralized apps are censorship-resistant, issues such as Facebook moderation bots mistakenly deactivating accounts belonging to Palestinian journalists and activists or YouTube machine-learning algorithms erroneously disappearing documentation of war crimes in Syria won’t be possible.
With Bitcoin, dApps Can Enjoy Faster User Adoption
The crypto industry has created $3 trillion of liquid value in 10 years, comparable to the valuation of all private venture-backed unicorns combined, and that value creation is led by Bitcoin. There is an incredibly large but still untapped opportunity to bring dApps to the Bitcoin ecosystem.
Tap into an existing community
Bitcoin has a large and dedicated community of users. More than 60% of Bitcoiners have been holding BTC for more than a year. Whether they are Bitcoin centrists or Bitcoin maximalists, one thing that Bitcoiners all have in common is a passionate and vocal belief that Bitcoin is a powerful force for positive disruption. When you build for Bitcoin, you’ll have an army of advocates ready to adopt your app.
Access patient latent capital
Developers who build dApps on the Bitcoin network can create opportunities for Bitcoin hodlers to put their assets to work. Currently, Bitcoin mostly functions as a store of value. Bitcoin has a market cap of nearly $1 trillion, but only about $14.2 billion worth of Bitcoin is deployed in Bitcoin Defi. The rest of that capital is waiting to be unlocked by new Bitcoin dApps.
Accelerate through flywheel effects
There’s already a large community of Bitcoin users, but the flywheel effect could cause the community to grow exponentially faster. New dApps encourage more users to participate in the network. More participation leads to an increase in the value of Bitcoin. Increased value attracts more developers to build new apps, which attracts new users, and the cycle goes on. Through this flywheel, Bitcoin dApp growth could accelerate, further establishing Bitcoin’s market dominance.
Stacks Enables You to Build dApps for Bitcoin
For developers who want to build dApps that can compete with centralized apps and win, you’ll need the Bitcoin advantage to supercharge the ability of your dApps to displace traditional apps.
Stacks blockchain is the programming layer of the Bitcoin network, and it enables you to write fully expressive smart contracts to create dApps secured by Bitcoin. Want to learn how to build dApps for Bitcoin? We have a comprehensive library of developer resources and tools to get you started.