Domaining — investing in domain names with the intention of selling for profit — has become an increasingly popular activity over the past two years. There are in total about 340 million names registered, and the global domain name registrar market is expected to reach over $1 trillion by 2027.
Decentralized domains make up a small but rapidly growing part of the global market. Ethereum Name Service (ENS) — the most widely-used Web 3.0 naming system — has consistently been one of the most traded non-fungible token (NFT) projects, attracting Web 2.0 giants like Puma and NBA and celebrities like Jimmy Fallon and Paris Hilton.
Even GoDaddy, the Web 2.0 domain juggernaut, has acknowledged that Web 3.0 identities are capturing a lot of attention from traditional domainers and recommended “defensive registrations” to its clients as a way to secure their brand domains.
But what exactly are Web 3.0 domains? How do they work? Why is ENS the most popular? And, most importantly, can .eth replace .com?
What Exactly Are Web 3.0 Domains?
Web 3.0 domains are blockchain-based services that convert crypto wallet addresses into personalized, easy-to-remember usernames with top-level domains (TLDs) like .eth, .crypto, or .nft.
For example, instead of every time copying the clumsy wallet address, users can simply register a .eth name and make it resolve to that address. “Send the money to 0x….” becomes “Send the money to tom.eth”. This not only allows users to easily receive crypto payments but also enables them to use their decentralized identity across different platforms.
On top of that, Web 3.0 domains are NFTs, or digital certificates representing ownership of unique items. This means domain owners are in full control of their domains and can freely trade them on NFT marketplaces like OpenSea or SolSea.
Moreover, most Web 3.0 domain services allow owners to build decentralized websites (dWebs) on top of their domains. Unlike traditional domains, which are registered using personal information, users can do this completely anonymously.
Now let’s take a deeper look at ENS and what makes it the most intriguing Web 3.0 domain protocol.
The Inner Workings of ENS
Ethereum Name Service (ENS) is the most popular Web 3.0 naming protocol built on top of the Ethereum blockchain. The primary goal of ENS is to convert hard-to-remember crypto wallet addresses, content hashes, and metadata into human-readable names.
ENS is comprised of two smart contracts. The first smart contract is the ENS registry, which is responsible for storing data like the owner of the domain, the resolver for the domain, and the caching time for all records under the domain.
The second smart contract is the resolver, which is responsible for translating domain names to machine-readable addresses and vice versa (also called “reverse resolution”).
Just like in traditional domaining, ENS domain owners can also issue subdomains. With the upcoming release of the NameWrapper smart contract, ENS owners will be able to wrap their subdomains into ERC-1155 NFTs, set their permissions or rights, and trade them on secondary markets.
Moreover, one of the most unique aspects of ENS (and one that is most overlooked) is that its native .eth TLD can be used to resolve not only Ethereum addresses but addresses on other chains too. The protocol supports over 110 different blockchains, including Bitcoin, Solana, and Dogecoin, and can even host Web 2.0 Domain Name System (DNS) websites.
ENS is also the only Web 3.0 domain service that is truly decentralized and governed by its decentralized autonomous organization (DAO). A DAO is an entity with no central leadership where decisions are made bottom-up by the community token holders (in this case, holders of $ENS). This means that ENS users are immune to centralized authority and are always in control of their domains.
Now let’s see how ENS is doing in the Web 3.0 market.
The Dominant Player in the Market
ENS is by far the most widely used Web 3.0 naming service. Established in 2017, the protocol has seen over 2.7 million domain registrations, the majority of which came during the last year. The protocol has generated more than $46 million of revenue from registrations and renewals, which is directed to the project’s treasury and used by the ENS DAO.
One of the factors that have contributed to such growth is the adoption by celebrities and well-known Web 2.0 brands. Celebrities that sport a .eth name on Twitter include Anthony Hopkins, Mario Goetze, Trey Songz, and others. Adidas, NBA, PwC, Budweiser, the New England Patriots, and others have also purchased their .eth names.
But it’s the ENS community that has been consistently building its market dominance and spreading the gospel. Sometimes called frENS, the people involved with the protocol have built entire marketplaces (like ENS Vision), analytics platforms, and appraisal tools, all to help spur ENS adoption.
The most recent trend within the community is the so-called clubs — groups that cater to specific categories of domains. For example, the 999 Club — the group of people holding three-digit domains between 000-999 — has attracted huge attention from the outside for its notable sales.
The most expensive three-digit sale was 300 ETH ($320,000) for 000.eth back in July. Nowadays, three-digit domains going for tens of thousands of dollars is the norm. Such activity eventually captured the attention of people like the Shark Tank investor Matt Higgins who himself bought multiple three-digit domains for hefty sums.
It was only a matter of time before domain services on other blockchains mushroomed. And mushroom they did.
Excitement Spilling into Other Chains
Over the last few months, decentralized domain hype started spilling over into other blockchains. Looking to ride the ENS wave, Bonfida, a Solana-based development firm, recently launched Solana Naming Service (SNS) and has already seen an uptick in activity. Users of BNB, Avalanche, and Tezos also joined the party with their own 999 and other clubs.
However, the biggest ENS competitor is Unstoppable Domains. Built on Ethereum, the company offers similar core services as ENS. But there are some fundamental differences in how they operate.
ENS is an open-source protocol developed by a non-profit organization and governed by its DAO. They offer only one TLD, .eth. Unstoppable Domains, however, operates as a for-profit company, and lots of its domains have been reserved for brands and other individuals. This means that everyday users are barred from registering what they want, even if it’s their actual name, nickname, or brand name.
On top of that, Unstoppable Domains offers nine TLDs to choose from, like .crypto, .zil, or .888. There are concerns within the domain community that this approach is unsustainable and aimed only at generating maximum profit.
Despite all this, the company has seen over 2.6 million domains registered since its inception in 2018.
Web 3.0 is still in its early development phases, and so are decentralized domain services. However, according to BCG, crypto will reach over 1 billion users by 2030. If these numbers come true, and protocols like ENS continue developing, it’s easy to see decentralized domains becoming an even larger subset of the domain market.
But can .eth replace .com?
It’s a tricky question. ENS sees itself as a complementary system to DNS rather than a competitor, and DNS users can import their websites into ENS to receive crypto payments without registering an equivalent .eth.
But even if ENS did try to become the main domain system, .com is simply too dominant to beat it any time soon. According to Statista, .com has a market share of 52.8% – that’s Google-esque market dominance. The second most popular TLD – .org – makes up only about 4.4% of all registered domains.
With that being said, if Web 3.0 takes off, ENS is set to shake up the wider domain industry.