As web3 technologies like cryptocurrency, NFTs, and the metaverse gain traction, a new form of blockchain-based domain name is emerging: the web3 domain.
But why should the average internet user switch to a web3 domain name ending in .crypto or .nft instead of .com? CCN spoke with Matthew Gould, CEO and co-founder of web3 domain provider Unstoppable Domains, to discuss.
Unlike traditional web domains, web3 domains are hosted on digital public ledgers instead of centralized servers. While traditional domains rely on DNS systems, web3 domains operate through blockchain protocols. Occasionally, you will read them described as “decentralized” domains, but they are essentially the same thing.
Anyone who has spent any time on so-called “crypto twitter” (now called X, of course) will be familiar with users of .eth domains—internet addresses on the Ethereum blockchain. Other popular examples include .sol, .crypto, .wallet and .bitcoin.
“Web3 domains are hosted on a public blockchain which provides users full ownership of their data,” Gould explains. “You fully own it once purchased, eliminating the need to rent names from a centralized authority like with .com domains.”
This gives users complete control and ownership over their web3 identities. According to Gould, “Only owners can modify their domain which provides more resistance to theft and hijacking.”
Plus, web3 domains simplify navigating the world of cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH). “It simplifies crypto transactions by using the domain as your wallet address instead of a complex string of numbers and letters,” Gould states.
Previously, you couldn’t use traditional addresses (like .net or .com, for example) for these features. However, as of October 30, Unstoppable Domains will soon be rolling out web3 features for their .com domains.
For new users, Gould insists the setup process is straightforward. “The process is as simple as finding your chosen name and paying for it with crypto or traditional payment methods,” he says. However, Gould acknowledges that beginners should expect a process of on-boarding if they are otherwise unfamiliar with aspects of web3. “There is an expected learning curve when navigating blockchain networks as a beginner,” he admits.
“As web3 technologies expand, such domains are likely to become essential tools in navigating and interacting with decentralized platforms,” explained Gould.
According to Gould, web3 domains also provide useful functionality for social networking and business uses. “Social apps benefit from native end-to-end encrypted messaging powered by XMTP,” he explains. “Other platforms like Coinbase Wallet can also receive encrypted messaging from web3 domains, greatly enhancing networking efficiency and safety.”
Alongside easier-to-use web3 wallets, decentralized domains are increasingly seen as a key way of increasing adoption of the decentralized web. By removing the need for complex addresses, it becomes inexorably easier to interact with decentralized applications (dApps) and crypto assets.
But despite all of the championing, decentralized domains have had limited take up. Ethereum Name Service (or ENS) is the domain name service provider that maps a Web3 URL ending in “.eth“ to an Ethereum address, wallet, content hash or web address. According to Dune , only 2.4 million total ENS names have been registered since May 4, 2017.
Registration numbers are also pretty erratic, with 16,351 registered in May 2023, but 56,869 registered in October. However, revenue generated by ENS domain registration and renewal is on a steep decline , with $9.6 million made in May, but only $126,000 taken in June.
One of the parallels with traditional crypto assets is that you can buy and sell your many decentralized domains with incredible ease. ENS domains, in particular, have been the focus of speculative investing for some time.
In a June 29 “town hall” call with the community, the team behind ENS revealed plans to adopt a Layer-2 platform in light of sky-high gas fees on the mainnet. In response, ENS prices climbed approximately 10%, trading volumes ticking up too. Just like any other crypto, improvements and updates—whether marginal or transformational—tend to produce an uptick in price.
“While ETH Prices have stayed below the $2,000 – $4,000+ range, there has been a noticeable uptick on ETH spent on Premium ENS costs (e.g., very short ENS names like 3 and 4 length names),” Carlos Mercado, Data Scientist at Flipside Crypto, told CCN.
In October 2023, the most unique Ethereum Name Service (ENS) addresses registered since September 2022. This surge likely stems from people taking advantage of low on-chain costs to make new names with longer lifespans, according to Mercado. (ENS names expire after a maximum of 99 years.)
A good way to get a grasp of how people are using web3 domains is to look at renewals as well as registrations. By looking at both registrations and renewals, we can glimpse at not only how popular they are, but also whether interest is waning over time.
Despite the ongoing bear market, Ethereum Name Service (ENS) renewals have held steady in 2023 as users actively maintain their names. This sustained growth in renewals shows that individuals value keeping their ENS registrations up-to-date, likely to avoid the risk of a cherished name expiring before the next bull market.
Savvy crypto holders know not to let their ENS names lapse during the downturn, ensuring their digital identity persists into the next cycle. As the crypto markets kick into gear, sought-after ENS names could provide sizable returns.
However, the fortunes of web3 domains are unlikely to hinge in the long-term on the resale value of domains, but rather their cost and utility.
The sad truth is that ENS domains (the most popular of the web3 domain options) are reliant on the often exorbitant gas fees on the Ethereum network. These fees, which cover the computational resources required to update the Ethereum blockchain, can rocket upwards if network congestion is too busy.
A quick scroll through Reddit will show ENS domain owners in despair at gas fees which are often many multiples of the original registration or renewal cost. Frankly, it’s a hidden fee most web2 natives wouldn’t countenance.
Thankfully, Layer-2 scaling solutions can remove much of this unnecessary friction.
There’s also the fact that for someone completely uninterested in cryptocurrency, dApps, or other digital assets, web3 domains offer little of value. At least at the moment. Like many aspects of web3, decentralized domains are reliant on the wider health and popularity of the ecosystem.