What is a DAPP? What is a Smart-Contract?

Dapps and Smart-Contracts were pioneered by Ethereum, the second largest blockchain. The idea behind ethereum was that blockchains were not just for money, and that any type of asset or data could be put into the blockchain. In order to make this happen, a blockchain platform had to exist that acted as a global computer, capable of running apps on the blockchain. 

Apps built on Ethereum are called dapps – decentralized applications. This means the application lives on the Ethereum blockchain, instead of a traditional server. In order to use the app, you will need an Ethereum wallet. 

Ethereum dapps are centered around the concept of smart-contracts. 

A contract is an enforceable agreement between two or more parties. It could be a simple agreement or a very complex agreement.

Smart-contracts put the agreement into code instead of on paper. The code automatically handles all the terms of the contract – verification, execution, authentication, the terms of the contract, carrying out all of the various clauses, and anything else the contract does. 

Smart-contracts do all of this automatically. This brings massive benefits to users – more transparency, lower costs, faster processing, reduced fraud, increased security, and many more.

The Ethereum Blockchain natively understands and executes smart-contracts. Here is a small example of what a smart-contract can do:

  •  A smart-contract can be created to initiate and execute an auction, like eBay. 
  • The user lists an item for sale in a 3-day auction. At the end of the 3 days, the winner of the auction is the highest bidder. 
  • The smart-contract will keep all funds in escrow and keep score of who the current highest-bidder is. When another user makes a higher bid, the smart contract will update
  • At the end of the three days, the smart contract will award the winner of the auction.
  • Before releasing the funds to the auction owner, the smart contract will keep funds in escrow to make sure the winner of the auction receives the item as described.
  • If the item is not as described, the smart-contract can even handle dispute resolutions.

The above scenario is an example of a simple smart-contract. The Ethereum blockchain supports building and deploying very complex smart-contracts. Everyday, more and more businesses are building on this infrastructure. 

Today, Ethereum is not the only blockchain that supports smart-contracts. Many other blockchains have been created that have their own implementation of smart contracts. However, Ethereum is still the most active platform for dapps and smart-contracts, and will remain so in the foreseeable future.

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