Blockchain and domains: hype vs. reality and what comes next – Domain Name Wire

Previous efforts to mix blockchain with domains have failed. Will new ideas work?

Blockchain + Domains written over a diagram of connected blocks

I spent a couple of days last week thinking about blockchain technology and how it can impact domains.

Blockchain company D3 held its second Dominion conference in Las Vegas immediately following the Internet Commerce Association meeting. It attracted a mix of blockchain enthusiasts, domain investors, and some who straddle the lines (which is quite common).

I’ve heard a lot about D3’s plans, but I wanted to understand more about how the company will make its ambitious plans a reality.

The alt-root experiment

Before discussing the future of blockchain and how it can work with domains, I think it’s important to talk about the past.

To date, most of the activity related to blockchain and domain names has revolved around creating blockchain-based alt-root domain names. Whether it’s Handshake, .eth, Unstoppable Domains, or many others, organizations have created their own “domains” with blockchain features.

The key feature of these is that they connect to wallets. This makes intuitive sense to me. Domain names make it easier to remember websites because they replace long strings of numbers, and these alt-root domains could do the same for wallets.

However, these names were pitched as much more than just wallet connectors. Many pitched them as alternatives to DNS domains for websites.

When these names came out, I knew we’d seen this movie before. Companies have tried to introduce alt-root domains many times, and they have always failed.

Alt-roots face a chicken-and-egg problem: people won’t build on them until they’re easily accessible, but browser makers won’t resolve them until are lots of sites on them.

Backers of blockchain alt-roots said this time was different. Why? Because, blockchain.

OK, but what problem were these trying to solve? There are already hundreds of top level domains and lots of second level domains available below them. There’s no shortage of good domains if you’re willing to look beyond .com. So it’s not availability.

“Ah, but on blockchain, nobody can censor or deplatform your site.” Question: how many people is this a problem for?

The one thing that made sense to me was wallet addresses. If blockchain name promoters had stuck with this pitch, it would have made much more sense.

But that has nothing to do with domain names, so why call them domains?

And, as someone told me this past week, the use case of having a cool name connect to your wallet is not that interesting. He said it’s not like he is going to tell someone his wallet address at a bar so they can send money to him. He’s going to copy and paste his wallet address into a message.

I see some marginal benefit to connecting a wallet to one of these names, but only a limited number of people have this need. The number of blockchain-based alt-roots way outstrips this demand.

One year ago this month, GoDaddy introduced a two-step wizard to connect domains held at GoDaddy to crypto wallets via ENS. (Ethereum Name Service works with any domain, not just .eth alt-root names.) Last week at the Internet Commerce Association meeting, someone asked Paul Nicks how this was going.

In a word, there hasn’t been much demand for it.

I think there are two reasons for this.

  1. If you’re technical enough to be into crypto, you probably don’t need a wizard to turn on DNSSEC and change DNS settings on your domain.
  2. There are only so many people with a crypto wallet who want to connect it to an easy-to-remember domain.

At this point, I’m mixing “real” domains with blockchain domains, but I think everyone agrees that the latest alt-root experiment has failed.

I know I’ll get flamed for saying this. But the only people doing the flaming will be those who invested in these alt-roots and don’t want to lose their money.

That’s one of the problems with these alt-roots. Almost all of them have been registered by people looking to make money, not to use them.

So, if these alt roots are dead, what does that mean for blockchain and domains? Are there other ways blockchain can enhance domains?

I’m open to ideas, and that’s part of the reason I had an open mind last week. I’m all ears if there’s any way to make buying and selling domains easier or cheaper or a way blockchain tech can help me sell more domains.

I’ve heard several claims about how blockchain tech can help domain investors. Let’s dig in.

Payments

The promise is faster and cheaper payments. As I outlined last week, I don’t think this is a big deal for domain investors. But certainly, a more fluid or cheaper process would be welcome.

Transfers

Proponents of tokenizing domains or bringing them “onchain” claim a faster and less painful transfer process.

As with payments, I don’t think transfers are a particularly troublesome impediment to domain selling. Afternic and Sedo have made it easier with their automated transfer systems, which can sometimes transfer domains in minutes.

When working with end users, they understand there will be a delay before they get control of the domains. They want a particular domain, so they are willing to wait.

Faster transfers could be most impactful with investor-to-investor sales, especially if domains are traded more frequently than they are now.

While blockchain technology cannot circumvent ICANN transfer rules, tokenizing domains could create a system for rapid transfers within participating registrar and registry ecosystems.

Liquidity

When you pay a commission to Afternic or Sedo, most of your payment is for bringing a buyer to you. Competing services that handle payments and transfers cost no more than 5%, so it follows that the extra 10% to 20% you pay the marketplace is for finding the buyer.

I think this is the most significant pain point that blockchain tech could try to solve.

There are several ways I’ve heard that blockchain could help with domain sales and liquidity.

The first is bringing in new buyers. It seems to me that the pitch here is that crypto traders would trade domains like they do (did?) NFTs. I will never turn down new buyers, but I wonder how this would play out over time.

Right now, domains are valued by investors based on how good a brand they will be for end users and the likelihood of a sale. (I’m ignoring traffic domains, which comprise a small part of the market.) Investors buy domains with the knowledge that some are better than others for end users, and end users will pay accordingly.

If crypto traders are brought into this, then what is the value based on? Sure, they could still buy domains with the same focus on their ultimate sale, but then, are they buying at wholesale prices like domain investors already do? Is this just a way to liquidate some of the domains in my portfolio at wholesale? Or are they creating a new valuation based on the same metrics that underpinned NFTs…and how long will that last?

Another pitch is that blockchain will allow you to take out loans based on your portfolio. Loans could be interesting for people who need cash. Lending against domains is already available, but it is done in a one-off manner.

This leads to fractionalization. There is certainly some opportunity here. Fractionalization already exists, although it is a bit clunky. Blockchain boosters think the technology could make it a lot easier.

It could undoubtedly open it up to more people. However, there are a lot of legal questions to resolve, which is part of the reason fractionalization is so clunky now.

The blockchain pitch for domains is changing

To its credit, D3 never bought into the alt-root vision. It currently offers names, but it plans to get matching ICANN domains in the next round of expansion. It’s careful not to call these existing blockchain names “domain names”. It even goes so far as to use an * instead of a dot in these names.

Unstoppable Domains, which has sold millions of alt-root blockchain domains, recently changed its tune. It became an ICANN-accredited registrar. Its website now promotes .com and other real domains and promises to improve them with blockchain technology.

To truly bring blockchain to domains at scale, companies need to create an ecosystem involving many registrars and registries. This is a massive undertaking that will require a lot of money. Last week, D3 announced that it raised $25 million and is launching a blockchain called Doma

Whether D3 can pull this off remains to be seen. One thing it has going for it is a team made up of long-time domain industry stalwarts, and that gives credibility to its efforts. That will go a long way in getting domain industry participants on board.

I can be a bit skeptical, especially regarding promises of blockchain improving existing technology. But hey, if any company wants to help me sell more domains, I’m listening.