Understanding Decentralized Applications (DApps) and Their Types on Ethereum

Internet users cannot fully control the data they share on today’s websites.

Ethereum is unique because it attempts to use blockchain as a method to correct parts of network design that its creators consider problematic.

It functions like a decentralized application store where anyone can publish unstoppable applications (dApps) without a middle‑man managing or controlling user information, unlike today’s apps such as Gmail or Uber.

DApps connect users directly with providers.

One example is a decentralized Twitter that resists censorship; once a message is posted to the blockchain it cannot be deleted, not even by the company that created the micro‑blogging system.

However, the definition of a dApp is still evolving because it is a newer concept.

Key characteristics include being open‑source and having no single point of failure.

Three Types

As this new technology is deployed in the wild, Ethereum supporters may be excited to “decentralize everything,” but the range of applications that can be built on the computation platform may be somewhat limited.

The Ethereum whitepaper classifies dApps into three categories: applications that manage funds, applications that involve funds but also require another component, and an “other” category that includes voting and governance systems.

In the first category, users may need to exchange ether as a way to reach an agreement with another user, using the network’s distributed computing nodes to facilitate data dissemination.

The second category mixes money with off‑chain information.

For example, a crop‑insurance dApp that depends on external weather data (a farmer buys a derivative that automatically pays out if drought affects his work).

To execute, these smart contracts rely on so‑called “oracles” to deliver up‑to‑date external information, although some developers doubt whether this use case can be truly decentralized.

If Bitcoin can be subject to financial authorities, can enterprises and other organizations be treated the same way?

Decentralized Autonomous Organizations (DAOs) are an especially ambitious type of dApp (explained further in “What is a DAO”).

The goal is to create a leaderless company that establishes rules from the start, discusses how members vote, how to allocate company funds, and then lets it run autonomously.