A review of decentralised applications

Web 3.0, dApps, blockchain, cryptocurrencies and more…

Uber connects you to a cab driver when you need a cab. Airbnb connects you to a host when you need a place to stay. Amazon connects you to a seller when you need to buy something. Twitter connects you to people who tweet, information you need etc.

None of these companies own the assets or produce the content that they distribute. This was a major paradigm shift during the web2.0 period.
(let’s assume for now that Amazon is a pure marketplace)

Some smart people have been asking for a while — do you need an intermediary at all ?

Why do we need the intermediaries now ?

• Uber’s founding team and investors had the incentive to make the service work for consumers and drivers.
• So they worked hard to create the application, seed the network by recruiting drivers & riders through discounts and a well oiled operations team.
• Even now they make sure that the service quality is maintained through various initiatives
• Even though many levels of customer support are automated, we still believe there will be few people accountable if anything goes bad
• A rider trusts the driver through ratings, reviews and a belief that there was a background check done before onboarding the driver.
• The price is set by Uber based on its understanding of supply and demand. This is not a universal feature. Classified platforms let the seller and buyer arrive at the price.
• The payment flows through Uber and both parties trust that the payment will reach the driver once the trip is completed
• A technical limitation of web apps is that they need a server to store state information as a web browser’s local storage is very limited and the communication protocols are stateless

What do we gain from not having an intermediary ?

• A take rate is the fee charged by a marketplace on a transaction performed by a third-party seller or service provider. Without an intermediary, theoretically the take rate should go down to zero and the participants should be able to earn more. Imagine Uber drivers earning more in this case.
• Freedom of speech: A decentralised social media app cannot not be censored by the company that owns the app. However I am not sure if this is a gain in itself.
• Ownership of data: A decentralised social media app will not have a central authority that owns your personal data
• Freedom from manipulation of value: Much touted benefit of crypto currencies over fiat money. Again, for an individual investor this looks like a benefit, for the society as a whole — not so sure

Other developments

• We now have the ability to own digital assets without the need of a central authority or application to enable ownership

Most popular applications now are in banking and gaming

Banking: Cryptocurrencies

• Cryptocurrencies store value and enable quick cross-border transactions without the need of a network of authorities around the world.
• The state (transactions) is stored in a distributed ledger on many devices in the public network as opposed to servers owned by a company
• The identity of users (keys) are stored in wallets which can be decentralised as well
• The transactions are verified by a large number of participants who are incentivised by mining fees or ‘gas’ inbuilt in the system.
• ICOs of cryptocurrencies that are linked to dApps are used in a way to raise investments without going through the traditional routes

Gaming: Now we have the ability to own digital assets, move them across games or buy and sell them through decentralised marketplaces

• CryptoKitties: A game that allows players to purchase, collect, breed and sell virtual cats
• Axie Infinity: A trading and battling game that allows players to collect, breed, raise, battle, and trade creatures, which are digitised as NFTs.

Apart from this, blockchain tech (a building block of dApps) can be applied in many use cases like

• Tracing ownership history of traded goods: Think used car sales, diamond trade, global supply chains.
• To keep immutable records: Voting, certificates etc.

There is a lot of interest around this space. There are many attempts to decentralise popular applications and use cases.

• FileCoin is decentralised cloud storage going after AWS/Azure/GCloud.
• Status is a decentralised messaging app among other things
• Drife is a decentralised ride hailing app

There are overblown expectations as well.For example, the expectation that all applications can be decentralised.

In a way, this is similar to open source software. Even when it is the cheapest option available, people trust a central authority(a commercial offering) to be responsible if something goes wrong. Can the new ‘trustless’ paradigm beat the trust given by a customer focused but profit driven organisation ? How will these applications survive scrutiny from regulators ?

When the dust eventually settles, a lot of industries will be impacted. Hopefully positively.

Source: CB Insights, Wiki