The rise of Web3 functionality has been a boon for decentralized domain name services over the past two years, with millions of blockchain-based domains registered to date. Challenging market conditions may hinder exponential growth, but industry leaders believe that utility-driven adoption will continue in the future.
Web3 fundamentally changes the way businesses, brands and retailers serve their customers, who take full control of their data, wallets and online identities from blockchain ecosystems like Ethereum.
Decentralized domain names are proving to be a useful tool for users and businesses to integrate Web3 functionality. From providing human-readable names that replace numeric wallet addresses to decentralized profiles in the Web3 ecosystem, decentralized domains offer an alternative to conventional domain services.
Ethereum Name Service (ENS) and Unstoppable Domains are the two most prominent platforms serving the space, with a combined 6 million domain registrations since their inception. Both services have a significant increase in newly created domains until 2021 and until 2022.
Cointelegraph reached out to several decentralized domain name platforms to gauge the current state of the industry, who is driving registrations and what the future holds.
2022 under review
2022 is proving to be a big year for ENS and Unstoppable Domain, with both companies highlighting some key metrics from the year in correspondence with Cointelegraph.
ENS is a distributed, open, extensible name system that runs on the Ethereum blockchain. This maps human-readable names like “alice.eth” to machine-readable data like cryptocurrency addresses and URLs.
ENS mimics the conventional Domain Name Service (DNS) by using dot-separated hierarchical names, commonly known as domains, with the domain owner controlling both that and any subdomains. An ENS domain is effectively a nonfungible token (NFT) that is an Ethereum wallet address, a cryptographic hash or a website URL.
ENS developer Makoto Inoue said the platform’s total officially registered domains are 2.8 million as of January 2023, excluding names re-registered after expiration. When including subdomains and DNS names, that number rises to 3.9 million — excluding off-chain names like Coinbase’s in-house cb.id domain solution for decentralized wallets and identities.
Nora Chan, vice president of communications at Unstoppable Domains, unpacks the premise of the blockchain-based domain name service. Unstoppable Domains offers Web3 domains on Polygon with no gas fees, providing an affordable way for users to create a secure and portable identity for Web3.
The domain can be connected to Ethereum and used for various purposes, such as sending and receiving cryptocurrency, logging into hundreds of apps and metaverses, building decentralized websites, and building Web3 identities.
The platform has registered and registered 3.1 million domains to date, with 1.2 million registered in 2022 alone.
Measuring growth in a bear market
Both Inoue and Chan envision bearish market conditions in 2022 and offer different views on the impact on decentralized domain registration. The depressed market conditions are actually a boon for ENS registrations, as Inoue explained:
“During the bull market, high gas costs actually hindered the growth of ENS as .eth registrations cost between $50–$100 while a one year annual registration is only $5/year.”
But as the cost of gas has gradually decreased, it has become more affordable to register an ENS name. Inoue also noted that ENS 2022 registration growth was influenced by the “category” discovery.
This includes ENS domain names based on a list of names with common traits like “10K Club,” which are four-digit domain names, from 0000.eth to 9999.eth; and the genesis-era ENS domain, which is a group of ENS names chosen before June 2017 – before the popular CryptoPunks NFT collection happened.
Meanwhile, Chan admitted that the registration rate with Unstoppable Domains will decrease in 2022. However, the 1.2 million domains registered in 2022 will still be more than a third of the total domain list.
Third party integration
Companies, brands and users are becoming increasingly familiar with Web3 functionality. Using a decentralized domain, users can carry their full digital ID with them, pay for items on e-commerce sites, and collect NFT or extra versions linked to specific real-world products.
As more and more of these services are connected to Web3, the likes of ENS and Unstoppable Domains provide the infrastructure for businesses and users to enter this new paradigm.
For ENS, the rise of Coinbase’s high-profile cb.id subdomain integration is the biggest third-party service integration story, according to Inoue.
Cross-Chain Interoperability Protocol (CCIP) is a universal standard for developers to create services and applications that can transact and send information actions across multiple networks. ENS developers say CCIP Read provides a way to store ENS names outside of Ethereum layer 1, which reduces overall gas costs.
Chan highlighted that despite the new cryptocurrency bear market, Unstoppable Domains’ extensive integration footprint with partners like Brave, Opera, Trust Wallet and Etherscan. The company has also launched a range of Web3 top-level domains – including .x, .nft, .wallet and .crypto – with major brands and companies.
Unstoppable Domains’ work with Blockchain.com created the .blockchain top-level Web3 domain, unlocking the potential of 83 million Blockchain.com users who may be looking for a customizable .blockchain domain or human-readable wallet address.
What’s in store for 2023?
Subdomain registrations could increase in 2023, if Inoue’s prediction is correct. ENS developers told Cointelegraph that ongoing development could give users more control over subdomains:
“2023 will see a surge in subdomain registrations. This will be driven by the release of the ‘Name Wrapper,’ a feature to convert subdomains to NFTs (currently only .eth NFTs), allowing the public to sell and transfer subdomains more easily.
Inoue also highlighted subdomain integration with Coinbase as an adoption driver, making the ENS name more accessible to users. It also reduces the cost of gas to interact with the Ethereum protocol, “making it resistant to bull market gas spikes.”
While these subdomain registrations don’t bring direct revenue to the ENS organization itself, Inoue says they drive the adoption and overall usefulness of the protocol in the Web3 ecosystem.
Chan said a focus on creating more utilities, building partnerships and improving the service’s user experience will be key to continued adoption this year.
Alternative view
Cointelegraph also spoke with PeerName founder and CEO Vasil Toshkov, whose platform was founded in 2014, selling .bit domains based on Namecoin. The platform currently sells several Emercoin blockchain domains – including .coin, .bazar, .lib and .emc – and currently manages around 8,000 domains.
Toshkov said PeerName sells “truly decentralized domains” for websites it uses and does not offer NFT domains or centrally managed services. Previously we sold a wider variety of domains from different platforms but now we focus on decentralized practical applications.
PeerName is selling around 700 domains by 2022, with Toshkov highlighting increased competition and high costs at the end of the bull market as key challenges:
“Our business performs better during a bear market. Then, the competition with fake domains disappears. Fees are low, and users can pay smoothly. We also only have users who buy domains for use, not as speculation.
The most sold domains on PeerName include .bit, .coin and .onion. The final domain is not blockchain based but is used in the Tor browser and client systems. Toshkov believes that it is possible that the .bit domain is also integrated into the Tor project and browsers can make adoption.
“If this happens, the interest in them will be great. This is the first and most decentralized blockchain-based domain. It’s like Bitcoin, but for domains,” he said.
Cointelegraph has previously explored the prevalence of domain “piracy” and “squatting”, driven by speculative users registering domains with well-known brands or names.