I’m a personal finance reporter, but I just spent a whole day trying to play a game where you battle creatures in a digital pet universe.
For journalism, obviously. I was trying to grasp a better understanding of one of Ethereum’s main use-cases: DApps, or decentralized applications.
Many of the experts I’ve talked to describe the “transformational” nature of Ethereum, the second largest crypto by market capitalization. I’ve heard everything from “It’s the future” to “It’ll change the world as we know it.” When I ask experts why they feel this way, it often comes back to DApps.
DApps can serve different purposes: anything from P2P (peer-to-peer) lending services to fantasy games to social networks. But what are they actually like? How do I use one, and why would I want to? I’ve talked to cryptocurrency experts for months and still felt like the concept was out of reach.
So I decided to go to the source and figure it out for myself. Experts say Ethereum is one of the only cryptocurrencies new investors should bother with. Since DApps are a big part of that value proposition, I wanted to find out what investors should really know about them.
Turns out, investors probably don’t need to know that much to benefit from them. Experts say more people buying Ethereum to use DApps can help drive up the value as an investment. Here’s how it works:
What Are Decentralized Applications (DApps)?
DApps are programs that perform different activities via smart contracts, independent of any central network or platform. P2P loans are one such example, and allow individuals to get loans without going through a bank.
Lending DApps are an example of decentralized finance (DeFi), an area of development that many experts are excited about. But there are DApps for a lot of things, like decentralized cryptocurrency exchanges, social media networks, digital artwork, and more.
Think about DApps like the apps you have on your cellphone. For Apple users, you might think of the Ethereum blockchain like iOS, and DApps like apps you buy in the app store. The same way you must have an iOS product to use Apple apps, you have to access the Ethereum blockchain to use Ethereum-powered DApps.
Even understanding that analogy, it still felt too nebulous to me. I have a cellphone and can go to the app store for normal apps. But how do I access this future-changing, cutting-edge technology to use DApps?
Turns out, you go to the internet and type in: ethereum.org. Oh.
Ethereum.org offers instructions:
- Get a crypto wallet
- Buy Ethereum (ETH)
- Find a DApp (through Ethereum.org or other sites like dappradar.com) and go to its website. Depending on which DApp you choose, you’ll likely need to create an account, like when you access a new iOS app.
- Connect your wallet and gain access by using your ether within the decentralized application. Ethereum-based DApps require both a wallet, which acts as your “login,” and a transaction fee payment in ether, which essentially means you pay to play over the Ethereum network.
I personally own a very small amount of crypto and hold it in my account with the cryptocurrency exchange where I bought it. But to access DApps, I needed to put my crypto into a wallet, with an address, so that I could connect it to a decentralized application. I knew using a DApp would most likely require me to spend cryptocurrency, which I didn’t necessarily want to do, as experts say it doesn’t really make sense for investors to use crypto to pay for things. But in the name of research, I proceeded.
So I downloaded an online wallet, connected it to the exchange, and purchased some Ethereum (ETH), incurring a fee to transfer out of the exchange and into my wallet. It was time to see what these DApps were all about.
Choosing and Using a DApp
There are thousands of DApps out there, but on an expert recommendation, I decided to start with a gaming DApp.
“Technology often first touches people with games. Think about something like virtual reality. It’ll probably be used for a lot of different things, but it started in games,” says Sid Coelho-Prabhu, group product manager of DeFi & Wallet at Coinbase, a cryptocurrency exchange. “Even with something like blockchain, gaming has the potential to reach hundreds of millions of consumers as one of the first applications.”
A quick search on DappRadar.com revealed “Axie Infinity” was the top Ethereum game by users, with 24,310 of them. In order to play, you need to buy “Axies” — fantastical creatures that battle, breed, and trade on behalf of the players — with your Ethereum. You can build a collection of these Axies, and can also buy upgrades and extras throughout the game, similar to other non-DApp role-playing video and computer games.
I went to the “Axie Infinity” website and was immediately discouraged. I’d have to download another wallet to get access to the game. Because of network congestion Axie Infinity users faced last year on Ethereum’s network, its creators made a second, Ethereum-connected blockchain for the game, with its own customized wallet.
The conundrum I ran into when trying to play Axie Infinity is not uncommon for DApps in general, and is probably a large barrier to entry for most people — and especially those who are just looking to invest in Ethereum rather than go all in on the world of DApps.
Simply put: it’s complicated.
Plus, setting up a new wallet would mean incurring more transfer fees and more time to wait before I could play. I decided I didn’t want to be in a “digital pet universe where players battle, raise, and trade fantasy creatures called Axies!” badly enough to keep going.
Why This Matters for Investors
Whatever crypto investors think about “Axie Infinity” or any other novel DApp, experts say more people buying Ethereum stands to benefit those who are buying in with long-term value growth in mind.
Before You Invest In Crypto
Experts say it’s smart to keep your crypto investments under 5% of your overall portfolio. Crypto prices fluctuate wildly by the day, and experts also say you’d be smart not to invest more than you’d be OK losing if the market dropped out altogether. Crypto investments should also never get in the way of other financial priorities like saving for emergencies, paying off high-interest debt, and saving for retirement using more conventional investment strategies.
Every transaction that occurs on the Ethereum blockchain — including those for future “Axie Infinity” players — requires payment, and “this requires that users have to buy and use ether in order to access apps built on the network,” says Coelho-Prabhu.
This demand in turn can drive up the price of Ethereum, says Michael Angelucci, a CFP and financial advisor at Level Financial Advisors in New York. From DApps to NFTs, “it’s the demand for the coin driving the price up,” Angelucci told us recently.
So even if I won’t be attempting to play “Axie Infinity” again any time soon, Ethereum investors can benefit from those thousands of other users who are playing. This innovation on the Ethereum network is also further support for why the experts we talk to say investors should stick to Ethereum and Bitcoin.
Whatever you might think of the latest DApp you may or may not have heard of, someone else paying to play or use it is good news for your portfolio.