What is Decentralized API & How Does it Work?

API is a term thrown around with considerable abandon when discussing applications and the web economy. This is for a good reason, given how important they are to the inner workings of everyday tech, but decentralized APIs are also starting to be whispered about.

Centralization is the hallmark of Web2, and while consumers tend to receive user-friendly products that tick many boxes, value capture and equity are significantly absent.

On the other hand, decentralization of APIs may not seem like as big a deal as owning your own assets in a game or being appropriately rewarded for your time spent with an app, but it solves several major industry problems.

If you’d like to learn more about APIs and how decentralized APIs are about to change the game, keep reading!

What is API?

API, which means Application Programming Interface, is a set of rules governing how data is exchanged between two systems, allowing them to communicate. To share data or for one system to access the functions provided by another, an API is required to bridge the gap.

Generally, tech and digital firms use APIs to provide data or services as modules that can be integrated into other applications. Therefore, software development and optimization is easy thanks to the use of APIs in this manner.

An easy example is the weather app present on most models of smartphones. This application can display weather updates and information because it is able to communicate, via APIs, with various weather services whose systems contain the required data.

API architecture tends to consist of clients and servers. Applications sending requests, like your weather app, are the clients, while the weather service’s system would be the server since it sends a response.

There are several types of APIs that work in different ways. The most common is the REST API, where a client sends a request to the server as data. The server then uses this input to start internal functions and returns output data back to the client.

Centralized vs. Decentralized API

Traditional APIs, often called legacy APIs, tend to be centralized by design. In these legacy API systems, data is collected in a section of the API platform called the central data store. This central data store uses asynchronous connections to maintain bi-directional synchronization with linked backend applications and business partners.

However, this centralized arrangement creates a single point of failure, making the system very vulnerable. A problem with that server means the entire system can go down, and hackers can access all data easily since only one node needs to be breached.

Decentralized APIs, on the other hand, offer a little more safety. For one thing, hackers can no longer access all data unless they breach every single node on the system. In the same way, the failure of one server isn’t a huge problem because other servers remain operational and keep the system chugging along.

These are just a few of the benefits of decentralization, which implies that reliance on centralized servers, services, or platforms is removed. The application or system runs on multiple machines rather than just one and is more often than not blockchain-based and incentivized by cryptocurrency.

How Does Decentralized API Work?

Crucial to how APIs work are components of the system called API gateways and API endpoints.

API endpoints are the final touchpoints in the communication system, including server URLs, services, and other specific digital locations from which information is moved between systems.

API gateways, meanwhile, are API management tools typically used by businesses that use a wide range of backend services. They handle functions such as user authentication, statistics, and rate management.

The key difference between how centralized and decentralized APIs work relates to the API gateway. In a decentralized system, the API gateway directs client queries to other API endpoints. In a centralized system, client queries are directed to the central data store, which was referred to earlier.

There are several other differences when it comes to the inner workings of centralized and decentralized APIs, such as the fact that dAPIs perform data format transformations at runtime. This means that dAPI data is always up-to-date, while legacy APIs can have temporarily stale data due to their asynchronous nature.

There are several working examples of decentralized blockchain-based APIs, such as the API3 project network and the IPFS decentralized file storage system. Programmable blockchains like Ethereum could also be viewed loosely as dAPIs.

Benefits of Decentralized API

As mentioned, decentralized APIs tend to feature better data accuracy than centralized APIs. They are also:

• Scalable. Performance characters of decentralized systems tend to increase as more nodes are added, so dAPIs can get faster and store more data as this happens.
• Secure. Distributed systems have a major security advantage over centralized ones since it needs a much wider net to attack the system by compromising the majority or even all of the nodes rather than just one.
• Flexible. The system can adapt and evolve quickly based on market and customer needs since each node can be individually updated as needed.
• Trustless. Centralized systems always require users to trust the central entity, but distributed systems provide a consensus instead.

That’s not to say that decentralized APIs are perfect, though. Decentralization can also mean a lack of standardization, meaning that developers have their work cut out for them to make applications that fit all nodes.

Code changes can also be difficult to push to a diverse group of nodes rather than a centralized or homogeneous set.

The Oracle Problem

Blockchains, especially ones like Ethereum, can be vast ecosystems of decentralized applications and data, much of it interoperable and forming an ever-changing technological mosaic.

Unfortunately, these ecosystems are contained in a sense. Smart contracts can retrieve data available on the blockchain, but they can’t grab information that isn’t already on-chain. However, due to the consensus-based security of blockchains, smart contracts can’t reach out directly to APIs.

This “oracle problem” is solved by using decentralized API services to manage data providers, and it’s made possible by the fact that they, too, are blockchain-based. For example, existing decentralized oracles don’t include the data source API as part of their solution, but decentralized APIs can do so.

This makes dAPIs even more suitable for the task since they provide an even higher degree of data transparency by going all the way down to the true data source level.

What is API3?

API3 is a blockchain-based dAPI project focusing on the Web3 API economy, allowing developers to create trustless applications. It shifts the emphasis of the industry from third-party oracle networks to first-party oracle solutions that deliver more security, efficiency, and data-source transparency.

The project allows developers to create decentralized Web APIs using the same codebase as centralized alternatives. This means that firms can build their own bespoke decentralized APIs while cutting down on fees and needing devs who are also blockchain experts.

API3 uses its eponymous token to incentivize participants and govern the network. It features a fully serverless oracle node called an Airnode that requires neither blockchain expertise nor maintenance to run.

Airnode and API3’s system have many advantages over legacy API implementations, and the project even removes the need for API providers to worry about gas costs and wallets.

Key Takeaways

APIs are crucial to how applications work and interface, but blockchain-based decentralized applications and their smart contracts can’t connect with them quite as easily.

This problem is solved handily by the decentralized API, which also provides a series of benefits, including greater reliability and trustlessness, security, and real-time data accuracy.

The emergence of the decentralized API is a boon to the blockchain industry, and projects like API3 are eliminating some of the main pain points of the industry and genuinely challenging even the best oracle protocols.