Decentralized Applications — Implementing Blockchain

The blockchain is a powerful technology which has massive potential in pretty much every business sector, not just for managing cryptocurrencies. One of the most exciting developments is “smart contracts” or “DAPPs” — Decentralised Applications.

The Ethereum platform, the second most important cryptocurrency after Bitcoin, was designed with this in mind.

The distributed, open-source nature of blockchain means that it is perfect for keeping track of all sorts of records — not just currency transactions — in a way that is transparent, efficient, and free from fraud and error: the distributed nature of the ledger nodes means that you can’t just change a record on one computer — all the nodes have to verify it or it is rejected.

This opens a whole galaxy of possibilities. I remember before email when you had to send documents by post — it cost money and took time, and sometimes they got lost. Email is so much more convenient, and the response time is much quicker. DAPPswill have a similar effect. They will be disruptive, some businesses will lose out, like fax machines being made obsolete by email. Others will be created. Like many new technologies, the cost of entry is lower than conventional businesses.

Ethereum is the backbone of many DAPPS. It uses its own language, Solidity, Ethereum which enables developers to form smart contracts using the Turing-complete Ethereum Virtual Machine (EVM). With these tools available, developers can create valuable applications. Now around 850 DAPPs have been built on Ethereum. For example, Golem allows people to sell the spare down-time from their computer for artists to create CGI renderings. It has already raised $220 million.

There are key factors to building a DAPP:

  • Open Source:

The application should be transparent and autonomous, and all changes must be decided by the consensus, or a majority, of its users. Its code base should be available for all to see.

  • Decentralized.

All records of the application’s operation must be stored on a public and decentralized blockchain.

  • Incentivized

However the blockchain is created, the nodes which supply computing power must be rewarded for their effort, probably with cryptographic tokens or coins.

  • Proof of Work/Proof of Stake

This is to give the users an investment in the process — proof of work is “mining” bitcoin, but later Proof of Stake was created to lessen the waste of computer power — users own a stake in the network.

How can you build a DAPP from the ground up?

Building on Ethereum has been designed to be extremely easy for developers to learn — with the languages being familiar enough for anyone with knowledge of JavaScript to pick up very quickly. Ethereum has a suite of tools to help developers build and test their applications. As this is a new type of software development it does require new skills but those can be learned by developers and added to their skill-set. For example, one of the more promising areas to create a DAPP is licensing. Lots of jobs need licenses of some sort: truck drivers, lawyers, even babysitters. Normally this means credentials from an authority. Those can be forged, and sometimes it can take time to issue the requisite license, which might be weeks in arriving. A DAPP could automatically update the blockchain (ledger) when the license was issued, and anyone scanning it on their phone would receive an immediate confirmation that it was valid. Instead of a physical license, it would be on a smartphone, so a reader or other smartphone would be all that was needed to verify it. It would be a very streamlined, and fraud-proof procedure.

How to implement Blockchain in Your Business and Why Should you do it?

There are so many applications that it is difficult to know where to begin, but let us take two very different examples: one is a Mom-and-Pop store that sells auto parts and accessories. It is at the end of a very long supply chain and is now having to compete against cheaper online vendors. Everything it sells is a physical product: spares, oil, windscreen wipers, furry dice etc.

Now our second example is a global news media organization. Thousands of video crews over the world upload digital media as both raw footages and finished stories to its distribution hub and these are sent to broadcasters, as well as being licensed to commercials, documentaries, and other media. It only deals with digital media now — it used to send out DVDs to clients, but no longer does that.

How would DAPPS make both companies more efficient and more profitable?

Simple: by reducing costs, and making operations more transparent, as well as allowing micropayments.

In the auto parts store, if there is a global supply blockchain that everyone can access, both the store clerk and the customer can check where the part came from. Counterfeiting is rife in the motor industry, and you really don’t want a fake brake disc. With the blockchain, you would be able to follow the journey of your brake disk from saying Hyundai in Korea to the store. You’d know it was genuine. If it were out of stock, you’d know actually where it was on a ship just coming into port, so you’d have a much better idea when it would arrive, none of this “We’re expecting it Thursday that’s our delivery day” — which is what one store I go to always says — actually they have no idea if that part will be in or not! The costs of operating a blockchain would be lower, so the little store would benefit and have less administration.

The global media organization faces similar problems. It distributes its “media assets” in many different ways, with many different licensing fees payable and a large accounting operation to collect them. Much of its material is pirated, not just because some users want something for free, but also because the licensing fees are high and there is a lot of hassle involved. It is very difficult for the company to prove that someone got the footage in an unauthorized manner as there are so many distribution outlets. If the copyright owner, metadata (important information about the video), and the media were linked via a “smart contract” DAPP on the Ethereum base, which took a micropayment automatically when the content was downloaded or used, then this would be much more efficient. Thousands of bean-counters at head office would be out of work, but that is one of the areas of disruption of blockchains. “Fake news” would be reduced because the location and time of the original film would be recorded in the blockchain — manipulation of the footage would be easy to prove.

You can see from the two above — very different examples — that businesses of all sizes can use blockchains. As the skills and expertise of this new area increases it will be practical for all sorts of blockchains and DAPPs to be implemented, particularly using the Ethereum backbone, which has already undergone “stress-testing” and seems to be both secure and functional in the real world, so you should start having brainstorming sessions to see how they could be used in your business sector. Amazon Web Services,for example, are rolling out various DAPPs to their customers, so they clearly think that these applications are going to play their role in the future of cloud computing.

Ali H. Askar
Cloud Solutions Consultant

A Quant Trader | Data Scientist | can I help you?