Blockchain technology attracted a huge amount of interest from the finance sector when Bitcoin got launched in 2009, but people soon realised that finance is not the only area that the technology can potentially benefit. Blockchain is gaining a good deal of momentum in the world of technology as major brands like Microsoft and IBM jump the bandwagon to assess the possible ways in which the technology can be successfully utilized in fields where transactions are involved through decentralized application development.
MIS (Moody’s Investor Service) released a report in July 2020 which examined the potential application of blockchain in a host of transaction related areas. The technology, originally created to the platform that supported Bitcoin, had 25 use cases according to the Moody’s report.
Blockchain — A Decentralized Technology
Blockchain can be defined as a chain of blocks, wherein each block contains encrypted records of any transaction between two or more parties. It is a continuously growing list of data records that gets organized into a series of blocks. The most important feature of blockchain is the fact that all the information stored in this manner is decentralized.
Blockchain is a distributed database that maintains ever-growing data records for any kind of exchange of information. The data records are decentralized — which means they do not have a central system that feeds information to subordinate systems. This is how blockchain backed data records are hardened against tampering or revision. Blockchain is a decentralized platform that does not allow data to be controlled through a single point of control. The information is available to be viewed by anyone. For instance, a key concept where blockchain technology is applied is ‘smart contracts’. The smart contracts can exist among several parties and can automatically verify and enforce contractual clauses when predetermined conditions are triggered.
Before we set about to understand how decentralized application development utilizes smart contracts, let us understand in detail what these are.
What is a Smart Contract?
A smart contract is a cryptographic computer protocol that is designed to facilitate, verify, monitor, and enforce an agreement in an immutable and exact manner. Smart contracts work without involving third parties like lawyers, auditors, witnesses, or even the governments. The systems in the distributed network is responsible for executing a strict consensus algorithm that ensures the fulfilment of every condition while performing any particular operation. Thus the system generates expected outcomes.
Decentralized Application Development and the Use of Smart Contracts
Based on the principle of blockchain technology, decentralized applications are the next big thing to hit the world of technology. They overcome the duplication problem that plagues any industry where exchange of information is vital. With the help of smart contracts, the decentralized applications are able to effectively fulfil their purpose.
Key Features of Decentralized Applications
- Decentralized — The prime feature of a decentralized app development is that there is no central authority controlling the flow of information or giving a nod on the veracity of information.
- Open Source — Decentralized applications are open source applications and the code is available to everyone — which further cements the transparency feature.
- Incentive Based — Crypto tokens can be used to reward network users or miners in case of decentralized applications. One of the main places where this feature is used is in case of decentralized social media app development where participants can exchange data or funds in a friendly social environment.
- Specific Protocol / Algorithm — Specific protocols or algorithms are applied to generate tokens that reward network participants.
- Blockchain Backed — Decentralized applications are based on the blockchain technology wherein important data is stored cryptographically in a blockchain.
Advantages of Decentralized Applications
- No single controlling entity
- More secure than client/server networks
- Secure record keeping
- Requires the permission of the entire network to alter any written blocks
- Cannot be shut down by single outage/attack
- No downtime
- Increased trust among participating members
- Easy to facilitate transactions
DApps or decentralized apps are better for certain tasks such as applications where data trustworthiness is absolutely vital. The rise of decentralized social network developers for creating an online social platform shows that people want to interact digitally on a social network that is trustworthy. Since decentralized apps are blockchain-based, the data stored by them is immutable and is therefore trustworthy.
Employing Smart Contracts in dApps — How it Helps
Since all decentralized applications are inherently open-source, they are easily visible to all members of a blockchain. This allows even their vulnerabilities to be seen by everyone, and malicious operators to exploit these vulnerabilities for personal gain.
These vulnerabilities include ambiguities in the code, compiler bugs, insecurity due to programming language used, blockchain attacks, and other security holes.
With time and advancements in the technology, these security concerns are being addressed. The smart contracts are effectively improving the scalability of apps and increasing the veracity of human engagements.
Currently, we are just scraping the surface when it comes to the potential of smart contracts and their applications in decentralized apps. With the deployment of immutable and exact agreements, a number of functions will be easily accessible to users. Automation of programs will result in hiring of better task force and thus improve operations in an organization. Business owners will be able to run their autonomous organizations independently, cost-effectively, and efficiently.
However, this technology is still in its nascent phase and faces a number of security challenges. Future efforts are targeted towards improving smart contracts and their application in decentralized applications and fully benefit further from the smart contract technology.
