One of the key components of a Dapp (Decentralised Application) is the smart contract, which is a self-executing agreement that defines the rules and logic of the application. Imagine you want to buy a house from a stranger online. How do you trust that the seller is not a scammer, that the house is in good condition, and that the transaction will go smoothly? How do you avoid paying hefty fees to intermediaries, such as agents, lawyers, and banks, who may not have your best interests at heart? How do you ensure that the contract is fair, transparent, and enforceable? These are some of the problems that Dapps aim to solve using smart contracts.
In this article, we will explain what a Dapp is and how it uses smart contracts. We will also explore some benefits as well as some challenges of Dapp and smart contract deployment.
Understanding Dapps
Mobile applications did not look as sophisticated as they do today. In 1993, the first instance of a mobile application for smartphones was launched by the R&D department of IBM Simon. Nokia would launch an in-built version of “Snake”, the basic arcade game on its 6110 model in 1997 which was considered the first mobile app. The game of developing mobile apps was changed with the launch of the iPhone by Apple in 2007.
While traditional applications have a fascinating history, they were largely centralised. Traditional centralised applications run off a single server or cluster of servers, hence they have a single point of failure or control. These apps work only when in contact with the central server which sends and receives information. Netflix, Snapchats and WhatsApp are examples of centralised applications. They are usually owned by a single entity and rely on third parties or intermediaries to facilitate transactions or interactions.
On the other hand, a dApp is an application that runs on a decentralised network of computers, such as a peer-to-peer network or a blockchain. dApps have common features compared to their traditional counterpart. For instance, dApps make use of front-end codes to create a web page like centralised applications. However, their back-end codes depend on the decentralised P2P network to run. Since the back-end codes are decentralised, dApps cannot be controlled by a single authority.
While traditional applications require the support of centralised servers and databases, dApps are supported by smart contracts. These smart contracts are used for enforcing rules and using codes for the purpose of mediating transactions. For example, a smart contract for buying a house could verify the identity and reputation of the seller and the buyer, escrow the funds until the inspection and title transfer are completed, and release the funds to the seller and the fees to the service providers.
The smart contract is just a small part of the whole application as you need a combination of several smart contracts along with third-party systems for the front end for a decentralised application to function. Examples of Dapps include Ethereum-based projects like Uniswap, which facilitates decentralised token swaps, and Brave, a privacy-focused web browser.
Exploring Smart Contracts
A smart contract is a self-executing agreement that is written in code and stored on a blockchain. A smart contract has the following features:
- It is deterministic: It produces the same output given the same input.
- It is transparent: It is visible and verifiable by anyone on the network.
- It is immutable: It cannot be modified or tampered with once deployed on the blockchain.
- It is enforceable: It automatically executes the terms and conditions of the agreement without the need for human intervention or intermediaries.
But without the blockchain, smart contracts will not exist. A blockchain is a distributed ledger that records and verifies transactions on a network. The blockchain is decentralised as it runs on a network of nodes, secured using cryptographic methods and is scalable enabling the transaction of large volumes of data without compromising data or security. The first Blockchain was Bitcoin introduced by Satoshi Nakamoto in 2008, introducing the world to an internet-based asset on a decentralised technology. On the other hand, Ethereum went live on July 30, 2015, and enabled users to mine ether and run smart contracts.
Benefits of Smart contracts
Smart contracts enable Dapps to automate and enforce the rules and logic of their operations, without the need for human intervention or intermediaries. Some of the benefits of using smart contracts in Dapp development are:
- They reduce costs and risks associated with traditional contracts, such as legal fees, fraud, errors, delays, disputes, etc.
- They increase the efficiency and speed of transactions and processes, as they eliminate intermediaries and manual steps.
- They enhance trust and security among participants, as they ensure transparency and immutability of transactions and data.
- They enable new forms of collaboration and value creation among participants, as they allow for complex logic and conditional outcomes.
How Dapps Utilise Smart Contracts
Smart contracts are integrated as the backbone of Dapp functionality. They define the rules and logic of how Dapps operate and interact with their users and other entities. They also facilitate transactions and interactions among participants within the Dapp ecosystem.
The role of smart contracts in ensuring transparency and immutability of transactions is crucial for Dapps. Since Dapps does not rely on third parties or intermediaries to facilitate transactions or interactions, they need a way to ensure trust and security among participants. Smart contracts provide this by recording and verifying transactions and data on the blockchain, which is visible and verifiable by anyone on the network. This also prevents any unauthorised or fraudulent changes or manipulations of transactions and data, as any attempt to do so would be detected and rejected by the network.
Smart contracts can be used in different types of Dapps, depending on the nature and purpose of the Dapp. Some examples of use cases of smart contracts in Dapps are:
- Finance: Smart contracts can be used to create and execute financial instruments and services, such as loans, bonds, derivatives, insurance, etc. For example, Aave is a Dapp that allows users to lend and borrow cryptocurrencies using smart contracts that automatically adjust interest rates and collateral ratios.
Source: AAVE
- Supply chain: Smart contracts can be used to track and verify the provenance and quality of goods and services, as well as to automate payments and delivery. For example, VeChain is a Dapp that uses smart contracts to provide end-to-end supply chain management solutions for various industries, such as food, luxury, automotive, etc.
Source: VeChain
- Gaming: Smart contracts can be used to create and manage digital assets and collectibles, as well as to enable peer-to-peer gaming and betting. For example, Axie Infinity is a Dapp that allows users to breed, battle and trade digital pets called Axies using smart contracts that govern their attributes and ownership.
Development and Deployment of Dapps with Smart Contracts
To develop and deploy Dapps with smart contracts, developers need to use various tools and platforms that provide the necessary infrastructure and functionality. Some of these are:
- Dapp development frameworks: To deploy smart contracts and dApps successfully, you need software tools that provide developers with libraries, templates, testing tools, etc. For example, Truffle is a popular framework that supports various blockchain platforms, such as Ethereum, Binance Smart Chain, Polygon, etc.
- Dapp development platforms: These are cloud-based services that provide developers with access to blockchain networks, storage solutions, analytics tools, etc. to create and deploy smart contracts and Dapps. For example, Infura is a platform that provides developers with scalable access to Ethereum and IPFS networks.
- Dapp deployment platforms: These are web-based platforms that allow developers to publish and distribute their smart contracts and dApps to users. For example, Remix is an online IDE that allows developers to write, test, debug, and deploy smart contracts on various blockchain networks.
What to consider before deploring your Dapp using Smart Contracts
While smart contracts are useful to the web3 ecosystem in terms of automating transactions, enforcing conditions, and coordinating actions among multiple parties, they come with challenges and risks, such as bugs, vulnerabilities, scalability issues, and legal implications. Therefore, before deploying your dApp using smart contracts, you need to consider several factors, such as:
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- The choice of the blockchain network: Different platforms have different features, capabilities, limitations, and costs. You need to select the platform that best suits your Dapp’s requirements and goals.
- Security: Smart contracts are vulnerable to various attacks and exploits due to bugs or flaws in their code or design. For example, The DAO was a dApp that was hacked in 2016 due to a vulnerability in its smart contract code that allowed an attacker to drain millions of dollars worth of cryptocurrency from its fund.
- Scalability: Smart contracts are limited by the scalability of the underlying blockchain network in terms of transaction speed, throughput, and cost. For example, Ethereum used to face congestion and high gas fees due to its limited capacity to handle a large volume of transactions and data before its transition to proof of stake consensus algorithm.
- Interoperability: Smart contracts are restricted by the compatibility of the blockchain platform they are deployed on with other platforms or systems. For example, you do not want to face challenges in integrating with other blockchains or legacy systems due to their different protocols and standards so consider interoperability with other blockchains before deploying.
- The design and testing of the smart contract: You need to ensure that your smart contract is well-designed, secure, efficient, and compliant with the relevant standards and regulations. You also need to test your smart contract thoroughly and vigorously before deploying it to the main network.
- The deployment and maintenance of the smart contract: You need to follow the best practices and guidelines for deploying your smart contract to the network. You also need to monitor and update your smart contract as needed and be prepared for any contingencies or emergencies.
