Published
January 11, 2022

The Rise of the Ethereum Name Service

A longstanding criticism that has plagued the world of cryptocurrencies and digital assets has been its rather inaccessible user experience. This UX issue would appear almost inherent to the technology, with wallet addresses being a natural source of friction for transacting on the blockchain. One project which has emerged to break down this barrier to entry and support the effort to make Web 3.0 just as user-friendly as its predecessor is the Ethereum Name Service (ENS).

Ethereum Name Service

This article will provide some background on the concept of ENS as well as its strong growth throughout 2021. In particular, the following subjects will be covered:

  1. The Precursor to ENS
  2. A Brief History of ENS
  3. A Technical Primer on ENS
  4. The Rise of ENS in Numbers

The Precursor to ENS

In order to understand the purpose of ENS and the project’s implications on making the world of crypto more accessible, it is important to begin with some background on its Internet-age equivalent. In Web 2.0, Internet users access websites through human-friendly domain names – for instance, nfttechnologies.ca. However, the underlying infrastructure which powers the Internet relies on a different format to redirect users to their websites of choice. To navigate to sites, computers rely on machine-readable numeric or alphanumeric strings known as Internet Protocol (IP) addresses – for instance, 54.164.4.68 – which are assigned to each domain name. Thus, there is inherently some disconnect between the address format that humans prefer to navigate the Internet and the format their computers rely on.

Without spending too much time on the technical minutiae behind the solution to this disconnect, it is common to think of the Domain Name System (DNS) as a sort of phonebook directory for the Internet. Each time an Internet user attempts to access a website through its domain name, the process of DNS resolution occurs to translate that domain name to its corresponding IP address. As a result, the computer is then able to navigate to the correct site. In effect, the DNS streamlines Internet usage by eliminating the need for users to memorize or maintain a list of seemingly random IP addresses for all of their most frequented sites. The implications this innovation has had on Internet adoption and user experience are quite self-evident. 



A Brief History of ENS

The ENS is a naming system built on the Ethereum blockchain. Where DNS is designed to resolve domain names to IP addresses, ENS was built as a way of easily resolving domain names to cryptocurrency addresses. This means that the use and exchange of cumbersome Ethereum blockchain addresses such as 0x89205A3A3b2A69De6Dbf7f01ED13B2108B2c43e7 can be replaced by the use of more human-friendly hostnames such as nfttechnologies.eth.

The origins of an Ethereum-based naming system can be traced back to Ethereum co-founder Vitalik Buterin’s 2013 whitepaper for the blockchain. The first formally-documented attempt at developing what would ultimately become ENS is found in EIP-137 as authored by Nick Johnson in April of 2016. In this EIP, Johnson proposed a protocol that could facilitate the resolution of human-readable names to service and resource identifiers on the blockchain. Improvements that Johnson’s proposed implementation would offer over other specifications for blockchain-based naming systems included support for sub-domains (e.g., portfolio.nfttechnologies.eth and insights.nfttechnologies.eth, among others) as well as allowing for multiple resources to be resolved to a common domain name.

Efforts to implement Johnson’s proposed specification for ENS began shortly thereafter, with the project’s launch occurring on May 4th, 2017. Thanks to the project’s initial traction, Johnson was the beneficiary of a USD$1M grant from the Ethereum Foundation to continue development of ENS. Development work has since continued, with several key milestones including support for Dapps based on distributed file stores such as IPFS and Swarm as well as the release of 3-6-character domains, an expansion beyond the exclusively 7-character domains that were made available at the time of the initial auction.

ENS can be said to have already reached critical mass, with integration across the crypto-sphere that enables users’ unwieldy alphanumeric addresses to be replaced by the much more digestible domain names under their ownership. Examples of popular platforms and services which offer integration for ENS domains include wallets such as Coinbase and Rainbow, Dapps such as Uniswap and Etherscan, as well as web browsers such as Brave and Opera.

A Technical Primer on ENS

As per EIP-137, the ENS architecture is composed of three core components: the registry, the registrars, and the resolvers.

  • The ENS registry represents the comprehensive list of all domains and subdomains. Within the registry, there are mappings between each domain and its owner as well as the resolvers responsible for it. It is worth noting that the domain owner in the registry can be an externally-owned account (i.e., an individual’s wallet address) or a contract account (i.e., the address for a smart contract comprising some part of a Dapp).
  • The registrars are responsible for assigning domains to users and have exclusive special access privileges to update the registry when domains change hands. As with the assignment of domains, registrars can also be either externally-owned accounts or contract accounts.
  • Resolvers fulfill the core function of the ENS, being to translate between domain names and cryptocurrency addresses. At a high-level, the process of resolving names plays out in two steps: first the user queries the registry to find the resolver corresponding to their target domain, then they query the appropriate resolver to translate the domain to its underlying address.

The domain name suffix (i.e., the characters following the final dot in a web address, most commonly .com) pioneered by ENS is .eth, an obvious nod to the blockchain on which the naming system is built and its native currency. That said, ENS introduced an unprecedented level of extensibility in implementing support for traditional domain suffixes such as .com, .org, .io, and .xyz, among others. In that regard, ENS offers greater integration with Web 2.0 infrastructure than do other blockchain-native protocols and applications. This is attributable to the project’s desire to build upon traditional naming systems rather than displace them, with the official documentation stating:

“ENS complements and extends the usefulness of DNS with decentralised, trustworthy name resolution for web3 resources such as blockchain addresses and distributed content…”

Currently, all domain names under the suffix of .eth are transferrable and tradable as NFTs. Conversely, subdomains and domains under non-.eth suffixes are generally not represented as NFTs. All .eth domains must be registered and renewed yearly for a fee, with registrations of domains with less characters costing much more than their longer counterparts to reflect their relative scarcities.

The Rise of ENS in Numbers

The outsize utility of ENS relative to other NFT collections, and the fact that it tactfully addresses an existing pain-point among crypto-natives as well as newcomers, has propelled the project to widespread adoption. Ethereum blockchain-explorer Etherscan’s June 2021 analysis of ENS activity reveals some key insights which evidence the project’s uptake. Consider the following numbers which portray the recent growth of ENS:

  • 30x: the increase in number of ENS domain registrations between February and June of 2021. The analysis reveals that in the first two years following the launch of ENS, monthly registrations averaged a measly 35 domains. This number began to grow slowly and ultimately skyrocketed through the NFT booms of 2021, arriving at a monthly registrations rate of 10,700 in June. The analysis further finds that gas prices and domain registrations have related negatively, with lower transaction fees through the month of June spurring a greater number of registrations.
  • USD$291M: the approximate value of ether held in accounts associated with the subset of ENS domains analysed in the report. Accounts associated with these domains also held roughly USD$34.6M in wrapped ether (WETH), USD$23.5M in USD Coin (USDC), and USD$21.8M in Uniswap coin (UNI). The collective ether holdings of these addresses account for 0.11% of total supply.
  • USD$2.3M+: the estimated annualized revenue earned from registration and renewal fees paid by the subset of ENS domain owners analyzed in the report. The majority of this would be derived from the longer domain names, which as previously mentioned are both more common as well as cheaper to maintain registrations for. However, with rising registrations of 3-4-character domains observed throughout 2021, it is likely that revenues will enjoy a gradual uptick going forward.

Conducting an updated analysis of registration volumes and revenues reveals that the success of ENS has continued through the remainder of the so-called NFT Summer. The collective monthly revenues drawn from registration and renewal fees achieved an all-time-high in August of 2021, and total revenues in only the first week of September have already amounted to over 37% of total August revenues. Assuming this rate of growth continues, September revenues for the ENS protocol will be 50% greater than the prior month. Similar growth is observable in terms of the count of monthly registrations and renewals, with August representing a combined all-time-high and the first week of September also showing impressive growth.

Trading activity in the market for ENS domain NFTs has generally tracked the rate of growth in registrations and renewals. Much like other NFT markets, the market for ENS domains has exploded in 2021. Year-to-date growth for rolling 30-day USD sales as at September 7th, 2021 has amounted to just over of 12,800%, with the sales count metric for the same timeframe achieving a respectable 2,210% growth. While there was a slight correction in early-July following a sustained month of parabolic growth in the sales count, the number of ENS NFT trades has since recovered and is poised to continue on a similarly steep trajectory through the end of summer 2021.

Closing Remarks

The ENS project is a boon to the cryptocurrency world at large, offering a tried-and-true solution to a critical UX issue and an existential barrier to adoption. The spirit of ENS to streamline the crypto experience and allow for vastly improved onboarding and ongoing usage is vital to the advancement of activity in digital asset markets, and the functional utility of domain name NFTs renders them among the most objectively valuable tokens currently trading on the market.

References

Cloudflare. (2017, December 20). What is DNS? | How DNS works. Retrieved from Cloudflare: https://www.cloudflare.com/learning/dns/what-is-dns/

Johnson, N. (2016, April 4). EIP-137: Ethereum Domain Name Service - Specification. Retrieved from Ethereum: https://eips.ethereum.org/EIPS/eip-137

Kamarul, H. (15, July 2021). 4 Metrics Showcasing ENS Adoption. Retrieved from Etherscan: https://info.etherscan.com/4-metrics-showcasing-ens-adoption/

Wikitia. (2020, July 23). Ethereum Name Service. Retrieved from Wikitia: https://wikitia.com/wiki/Ethereum_Name_Service



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