Smart contracts are computer codes that SELF-EXECUTE when certain conditions are met.
For example, when something (or someone) has completed a task in return for a reward and this has been programmed into the smart contract, the smart contract automatically sends the reward over to that something or someone.
Smart contracts are usually part of a blockchain’s code. They’re a small program within a larger blockchain software.
DApps, or Decentralised Apps, on the other hand, are FULL-BLOWN applications or programs that sit entirely on top of the blockchain, just like Word or Excel sit on top of a computer’s Operating System.
They are called Decentralised Apps because they only work with or on top of a blockchain. Blockchains are decentralised networks.
DApps have a set of functionalities, user interface and other functions like storage systems, messaging and communication features, privacy features, analytics and reporting features, and more.
DApps interact with blockchain through APIs, smart contracts and web interfaces. The programming codes for the DApps are NOT stored on the blockchain, just like Excel’s programming codes are not added to Windows OS (you have to download Excel separately to use it on a computer).
DApps’ programming code and data are stored on separate servers, and they communicate and interact with their respective blockchains to access and update data as needed.
DApps’s programming codes are also open source so anyone can inspect them, just like the blockchain they operate on.
Even though DApps are programmed by a team of programmers which appears to be centralised, their further development and operations are GOVERNED by their users.
Their users can VOTE as to what new functions and features they want to include in the DApps, and the DApps’ developers will take their views into consideration, although the developers will still have the final say on whether those functions will be implemented, as their users may not fully understand the technicalities and costs involved that may not make those functions practical or feasible to include.
Imagine any one of us participating in making decisions for traditional banks.
Here are some examples of a DApp:
1. Decentralised Exchanges (DEXs)
- Uniswap.org and PancakeSwap.finance are Decentralised Exchanges that operate on top of a blockchain. The blockchain is not owned by a single entity.
- Binance.com and Kucoin.com are CENTRALISED Exchanges (CEXS), as they are owned and operated by their respective single entities.
- Binance and Kucoin use the Order Books system that doesn’t run on a blockchain.
- Uniswap and PancakeSwap use the Automated Market Maker (AMM) system to fulfil buy and sell orders. AMM systems are decentralised. More on AMMs in a future post.
- To trade using a CEX like Binance.com, we must deposit our funds with it and trade through its platform.
- To trade using a DEX like Uniswap, we must connect our private wallets to the DEX and then trade with other traders directly. We don’t deposit our funds into a DEX.
- Thus with DEXs there is no risk of mismanagement of our money, or the insolvency or hacking of the exchange.
- Axie Infinity is a blockchain-based game where its players collect and fight creatures called Axis.
- The Sandbox is a blockchain-based game where players buy digital plots of land and create experiences on top of them to share with other users.
3. Real-world data
- Chainlink is a decentralised ORACLE network that provides accurate and reliable real-world data to smart contacts on blockchains. This further enables smart contracts to preserve the integrity of its work.
4. Decentralised Finance (DeFi)
- Decentralised Finance is a new financial system that does what traditional banks do, ie. lending, borrowing, payments, investments, asset management, trading, insurance, remittances and asset custody, but on the blockchain.
- MORE people can access DeFi systems as no identity is required
- The fees for the products and services are typically lower transactions are typically faster – up to 99% faster than traditional banks, because there are no intermediaries in a blockchain that the traditional banking system has.