Since the beginnings of trade and commerce, contracts between people have taken different forms. From a simple handshake to a voluminous set of agreements prepared by lawyers and signed by business executives, we’ve constantly invented new ways to exchange value. While complex paperwork may be necessary for today’s multilateral international commerce between corporations, a heavy contractual load definitely doesn’t do much good when you are browsing the internet, looking for a product or a service required on a daily basis. In fact, shopping on the web has made people less tolerant of slow transactions and more accustomed to getting what they need with a few simple clicks. Smart contracts, or contracts that support the execution of decentralized applications (dApps), are one way of making digital trade less burdensome.

Smart contracts are computer protocols or programs, code that’s behind blockchain networks used for building decentralized or distributed apps. Considering its popularity, it’s unlikely that blockchain is a completely new concept for anyone with even a bit of interest in technology news. But if we want to understand how the technology of distributed ledgers created on decentralized networks is offering new possibilities for dApp development, we need to see how decentralized apps are different from traditional apps.

Centrally Managed, Immutable, Distributed Computer Protocols

Traditional apps are web and mobile apps as we use them today on a variety of devices. They are centralized (data is managed on central servers and databases) and controlled by one or more third-party authorities. Smart contracts are based on a technology that reinvents the connection protocols between individual computers. They reshape traditional transactions by making them immutable, faster, more efficient and more secure. Instead of including a third-party trustee, the technology itself – the code in the smart contracts – makes it virtually impossible for any contractual party to change the contract or skip an obligation. The contract is executed only if all parties agree that a contract condition has been met. No individual party can tamper with the code, and consequently execute a part of the contract without the explicit permission of everyone involved. So the trust in dApps is built around the validation provided by the specific protocol process of smart contracts.

A good metaphor for smart contract consensus is the individual open member voting system on a board, where a decision cannot be enforced unless all members publicly and consensually agree. The difference is that the voting records are not validated in person, but on a computer network with a permanent recordkeeping system available to everyone at any given moment. Funding projects are an excellent practical example. If multiple participants want to fund a project only after a certain condition is met, by using a smart contract, no one can make individual investments until all parties confirm that the condition is met.

Intrinsically Stored Value

If you invest in dApp development, you will be able to store value in the dApp itself and issue tokens to participants. Traditional applications don’t really store value to incentivize participation. Instead, they only provide the infrastructure for parties to meet and complete transactions. Therefore, an alternative name for a smart contract is “smart account.” On Ethereum, the most popular dApp development platform, the main token that fuels transactions is called ether. But what’s even more important, participants can issue additional tokens on top of Ethereum. In this way, distributed networks are fundamentally different from centralized networks in traditional apps.

Open-Source Code and Easier Integration

The code used in dApp development is open-source. Since dApp developers can access the blockchain network without requiring central permissions, the existing code solutions and the infrastructure are available to anyone interested in creating dApps on the same network. Such openness enhances the possibilities for integration in the future, when new dApps will be created and potentially integrated with dApps already available. Things are not so simple with traditional apps, where the creator typically exercises much greater control over who gets access and sharing.

Security Improvements

Authorization and authentication criteria in traditional apps are set by following strict, centrally organized rules. This security method makes traditional apps more vulnerable to attacks executed toward the single central point. Therefore, hackers have greater chances of succeeding with hacking attempts. In contrast, dApps are based on a distributed security model, making cross-network security issues almost impossible. External intrusion can be easily noticed in a public distributed application because nodes get alerts across the network. Most security failures of dApps are a result of coding errors occurring inside the network.

Efficiency Issues

Blockchain technology is still fairly new, and it requires powerful computing resources to be able to support large-scale transactional efficiency. Traditional applications are currently significantly faster than dApps. In this sense, blockchain technology is analogous to the internet in its early days, when the web was a place for tech enthusiasts and gamers. Budding entrepreneurs who were able to see its potential back then became some of the most successful people in today’s online industry.

Other than Bitcoin, the most popular platforms for dApp development are Ethereum and Hyperledger. There are currently over 1,600 projects running on Ethereum and over 240 organizations working on open blockchain tools on Hyperledger, including many of the tech industry’s most powerful corporations. DApp development is still in its early days, but the promise of decentralized control is inspiring new innovations every day.

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