How does Ethereum Name Service (ENS) help accelerate Web3 adoption?
Sending and receiving cryptocurrencies initially used long (up to 64 characters) and complex base58 or HEX addresses, which are very difficult to read and memorize.
Over time, solutions that allowed the use of short and readable addresses that resembled website domains began to appear instead of a long set of incomprehensible characters. Ethereum Name Service was one of the first services that allowed to do this.
What is Ethereum Name Service?
Ethereum Name Service is an open-source, decentralized domain name service for cryptocurrency wallet addresses that works similarly to the well-known Domain Name Service (DNS). In other words, ENS for the Web3 industry acts as an analog of DNS for Web2.
The introduction of a domain name system called Ethereum Domain Name Service was first proposed in 2016 (EIP-137) as a smart contract that maps ETH addresses to other identifiers in blockchain networks. In 2017, the ENS system was launched, and another year later, True Names Limited (TNL), a non-profit organization, was established in Singapore, which currently oversees and funds operations on the Ethereum Name Service.
How does Ethereum Name Service work, and what problem does it solve?
Using complex addresses has several inconveniences:
- First, they are challenging to memorize. And if there are dozens or hundreds of such addresses? Then, it is practically impossible. If you use them regularly, you will have to keep them handy to copy them at a moment's notice;
- Secondly, it is easy to make a mistake when manually entering such an address;
- And thirdly, it will be harder to notice a character substitution if your device is infected with the corresponding malware.
Do you agree that it is much easier to memorize and enter the combination of characters google.com in the browser address bar than an IP address? In the case of cryptocurrencies, using such complex addresses can lead to loss of assets. DNS and ENS work similarly:
- DNS turns IP addresses into readable domains: e.g.,172.217.22.14 to google.com;
- ENS also turns, for example, 0x4DC501EeD2b61d58D188fD890C67fBc00DBA3E6A into uniswap.eth.
The main difference between DNS and ENS is who controls the distribution and assignment of domain names. In the case of DNS, this is handled by centralized organizations. If the servers are compromised, or if attackers, for example, manage to defraud domain name registrars, it could be disastrous for users. There have already been cases when attackers could gain access to the domain of a crypto project — this happened with the famous Galxe service. As a result of the incident, about $270,000 was stolen.
Ethereum Name Service, on the contrary, is decentralized and works through smart contracts, which excludes the possibility of domain spoofing. Once purchased, the address will belong to the user for a fixed period. The minimum purchase period is 1 year, and the cost starts at 0.002 ETH (~$4.6) and depends on the domain length: the shorter they are, the higher the cost.
Unlike centralized services, Ethereum Name Service does not present any possibility of unauthorized possession of a user's domain. In addition, for this purpose, the ENS team uses the InterPlanetary File System (IPFS) — a peer-to-peer hypermedia communication protocol for distributed file systems, which is also employed for NFT. It is believed that IPFS will replace the currently common HTTP.
The ENS service mainly uses domains of the domain.eth type allows standard DNS names such as .com, .org, .io, .app, .xyz, and others to be utilized as addresses. However, this is only possible if the user or company owns the domain.
ENS token
ENS is a native token of the Ethereum Name Service platform of ERC-20 format, issued on the Ethereum blockchain. The primary function of the ENS token is to manage a decentralized protocol through a voting system (DAO). In other words, ENS holders participate in decision-making on developing the Ethereum Name Service.
The maximum number of ENS tokens is limited to 100 million, but only about 30% of all tokens, or 30.7 million, are still in circulation. The capitalization of Ethereum Name Service exceeds $500 million, but according to this indicator, the ENS token is not even in the top 100 most significant crypto projects. Everything can still change.
Even though ENS is the primary token of the Ethereum Name System protocol, .eth domains are purchased using the ETH cryptocurrency.
Does Ethereum Name Service have a future?
Ethereum Name Service is undoubtedly one of the key protocols of the Ethereum ecosystem and plays a significant role in it. However, as far as the ENS token itself is concerned, its only current function is managing the protocol.
Of course, ENS is also used by liquidity providers in decentralized exchanges and other DeFi protocols. However, its utility (applicability) is still quite limited, as ENS tokens are still not even used to pay for .eth domains.
According to the official Ethereum Name Service website, as of February 2024, more than 800 thousand owners and more than 2.1 million domain names are registered.
Even Ethereum co-founder Vitalik Buterin himself spoke about the importance of ENS. Ethereum Name Service is the leading solution to the problem of using complex and lengthy addresses for transactions. There is a good chance that ENS will remain a key player during and after the gradual transition from Web2 to Web3, and its solutions can be used by large decentralized applications, which will also play an essential role in developing the new era of the Internet.