In less than a year, the cryptocurrency Bitcoin went from a low value of $200 to almost $20,000. It’s made millionaires out of people who bought the digital currency in its infancy. With its increased value, cryptocurrency has put the blockchain, digital currency, and decentralized applications in the spotlight. Before you jump in on any venture, you should first understand the blockchain and how decentralized applications work.
What is Blockchain?
The core component to decentralized applications is the blockchain. The blockchain is similar to an accounting ledger. Each transaction adds a block to the chain. A block holds transaction details, and it also points to the previous block to keep a linear ledger of all activity. A collision occasionally causes an orphaned block, but the “winner” of a collision is determined by other computers that contribute to the database. An orphaned transaction is rolled back and re-added if it’s a viable addition.
For years, application developers created software that ran on a central server and connected clients to a centralized data center to retrieve and manage data. Decentralized applications such as the blockchain use a peer-to-peer setup where no one entity controls it. The open nature of the application is what attracts people to digital currencies and the blockchain.
As technology evolves, it’s also devolving in many ways back to a decentralized peer-to-peer focus. The original Napster application, known for allowing music downloads, was a peer-to-peer, decentralized application. Users installed it on their machines and shared music from their local hard drive. Because Napster did not store or manage music, it was the foundation for its defense until it was shut down in 2001.
Blockchain software such as Bitcoin is decentralized in the same way older technology wasn’t installed on a central server. Users install a wallet on their local hard drive, and any transactions must go to the user’s public key. A private key is used to unlock the wallet and protects it from being accessed by a third party. Any changes to the blockchain must be copied to the database storage located on any individual local machine. Instead of having a database on a centralized server, Bitcoin and other blockchain software keep copies of the database on each user machine.
Blockchain technology, first introduced in 2008, is an open-source project. With open-source applications, the code can be used as a base for other applications when the developer “forks” it. A forked application is one in which the developer takes a copy of the source, copies it to his repository, and then makes additions and changes to form a new application with different functionality.
Most attacks on decentralized applications have been from poor security implemented by the developers. That is one of the weaknesses of blockchain applications. Attackers can poison its functionality and trick the vulnerable software into sending the digital currency to the attacker instead of the intended recipient. Although decentralized applications aren’t controlled by one entity, the software itself used to manage wallets and send transactions can be hacked. Hackers have attacked several applications in recent years, walking away with millions in the digital currency.
Adding Ethereum into the Mix
Of the several decentralized applications deployed, the most famous is Ethereum. Ethereum is a forked version of the original blockchain technology, but it’s much different than others on the market. It allows other developers to create blockchain applications more efficiently. It’ s the Visual Studio of the blockchain market, so it’s more like an application that helps you make software.
Anyone who invests in Bitcoin has heard of “altcoins.” Although most people call any digital currency “bitcoin,” Bitcoin is a specific application that manages digital currency, but not all digital currency is “bitcoin.” Bitcoin is a type of digital currency, but several others have popped up including Ethereum’s Ether. Investors have dumped money into other digital currency such as Litecoin, Monero, Ripple, and Zcash. Fluctuations in Bitcoin values affect altcoin values, but many investors have added these altcoins to their portfolios hoping they will be the next Bitcoin sensation.
Ethereum introduced Ether as a way to manage transactions. Blockchain technology is more than just digital currency. Any developer that wants to create decentralized applications can use the blockchain, and several other applications built with Ethereum have been deployed. To name just a few Ethereum projects, they include:
- An application that imitates Minecraft
- A microblogging platform similar to Twitter
- An artist sharing and distribution community
Peer-to-peer applications have a give-and-take relationship with each other. Ethereum charges developers to create “”contracts.”” A contract represented by a block of code in the developer’s application interacts with the blockchain, stores data or sends Etherto others. Every transaction requires Ether, and it’s how Ethereum controls developers from flooding the system. In a decentralized application, the community decides the price of a transaction, and the developer must pay the price to execute contracts. This is how Ether differs from standard digital currencies used to buy tangible products or trade for physical money. Not every blockchain application is used to purchase material goods, and this is a significant misunderstanding for people who are new to blockchain technology.
Decentralized Ethereum application can be created with any language on a specialized server called an Ethereum Virtual Machine (EVIVI). Working with [VIVI s and Ethereum is a considerable learning curve, but with enough tutorials, videos, and persistence, you can learn to create decentralized applications and publish them on the network. Because these applications are peer-to-peer, it’s much different than working with a standard centralized application where you have all control of data and server resources.
Is it Worth Investing in a Decentralized Application?
Because these applications aren’t under the control of any central entity, some developers and businesses find them safer than standard client-server software. The technology is still in its infancy compared to a cloud application controlled on a central server, but if you can strategically work with the blockchain, it might be worth giving it a try even as an MVP to see if there is any interest in it.
Several developers have introduced services specifically for blockchain technology, and these developers usually work with Ethereum. Research Ethereum, decentralized applications, and Ether to find out if it’s worth it for your business.