Decentralized applications, or DApps, are programs developed on top of open blockchains like Ethereum. The startups behind these new apps are beginning to challenge our traditional understanding of the modern corporations and even applications themselves. DApps are poised to emerge as a uniquely different structure through which individuals collaborate and interact with one another. Its unlikely that DApps will be easily subject to existing regulatory paradigms, corporate M&A strategies, and traditional venture capital.

What is a DApp?

DApps are executed on the Ethereum Virtual Machine (EVM) that is supported by the Ethereum network. Ethereum enables smart contracts which are blockchain-based programs that execute autonomously if and when certain conditions are met. These “blockchain housed scripts” or programs offer determinate computations based on its publicly available code once a transaction is sent to it.

Illustration of a DApp

DApps are similar to your traditional application but instead of the backend code being run on a centralized server, its server is a decentralized peer-to-peer network. Even the front-end code that makes calls to the backend can theoretically be hosted on decentralized storage and messaging networks like Swarm, IPFS, and Whisper.

Swarm and Whisper are apart of the Ethereum P2P protocol suite

DAPPS are unique from three perspectives:

1) New Features — By utilizing blockchain technologies and building on top of the permission-less and open Ethereum network, DApps offer new technological capabilities concerning privacy, automation, decentralization, and financial autonomy. Right now the “killer-app” is speculation, but we are moving into messaging, file-sharing and distributed computing.

2) New Funding/Business models — DApps and most ICO companies are not regular companies. They are more akin to the torrent network than a Delaware C Corp, even though they do have key stakeholders that can exert influence and may own a large portion of the tokens. They can be well funded via decentralized crowd-sales ($236M was raised in 2016 alone), they do not have a traditional legal structure and they build products on top of decentralized blockchain protocols. They also have different stakeholders and new organizational capabilities thanks to the versatility of ERC20 tokens.

3) New corporate structures — Traditional M&A strategies cannot be used on these “companies” and the “products” they build. Corporate governance is different or non-existent, economic incentives are completely new and they have radically different economic stakeholders. Traditional venture capital may have to buy the tokens themselves if they wish to become shareholders in these DApp companies, something that Polychcain Capital, ICONOMI, and Blockchain Capital seem intent on doing.

If these DApps seem speculative and early stage, it’s because they are. But despite this, they represent early indicators of what is possible with open blockchain protocols.