Decentralized apps are becoming the new norm in the world of blockchain technology. The benefits offered by DApps attract a lot of attention, and it seems as if the future role of this technology in the payment sector is only a matter of time.
What makes DApps so appealing to companies in the financial industry is their increased transparency, security, and automation of day-to-day operations. Using such a decentralized application, which is tied to blockchain technology, can lead to reduced operational costs. But there is more, as the technology can aid in reducing friction and accounting overhead. Customers stand to gain a lot from DApps as well, as companies embracing this concept could pass along some of their savings to consumers.
No Open Blockchain, No DApps
Using a decentralized application, however, would also require a distributed blockchain to run on. Bitcoin and Ethereum blockchains are two prime examples of that technology, albeit it is doubtful financial institutions will provide an open blockchain of their own. From all of the blockchain experiments currently taking place, the vast majority are either permissioned or private solutions.
To make full use of DApps, financial players need a blockchain solution that provides decentralization. High degrees of redundancy, proof-of-work incentives, and transaction changing are what makes Bitcoin and Ethereum tick. Private and permissioned blockchains, on the other hand, do not take advantage of these traits, making them less secure and centralized.
Mixing such centralized blockchains with decentralized apps will not work. The primary goal of DApps is to create tools and features not controlled by single entities, but run on cryptography and network consensus. However, with no proper consensus mechanism to be found in a private blockchain, there is no room for decentralized applications either.
DApps have a bright future in the financial world, due to their cost-cutting measures and frictionless nature. But they can only become a mainstream solution if the financial parties involved embrace the open blockchain. Andreas M. Antonopoulos recently held a presentation on the difference between private and open blockchains.
DApps in Action on the Ethereum Network
For quite some time now, developers and enthusiasts have been testing the concept of decentralized apps on the Ethereum blockchain. Given the open blockchain nature of Ethereum and its proof-of-work consensus algorithm, DApps can be executed in a secure environment.
Every step of the programming logic is paid for by its users in “gas.” This “gas” can be purchased with the Ether token, and is currently priced at 20 gwei. To put this into perspective, a DApp on the Ethereum blockchain can process hundreds of thousands of transactions instantaneously for less than less than 10 cents.
It is adamant DApps are a far superior solution to running a server and centralized exchange. Reducing costs to a bare minimum and removing any friction from the equation are appealing concepts to traditional finance. But if they want to embrace decentralized apps properly, they will need to use the open blockchain, and not their insular creations. Financial players cannot have one without the other.
What are your thoughts on decentralized apps in traditional finance? Let us know in the comments below!
Source: Payments Source
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