Ethereum Domain Names (ENS): Vitalik Buterin Highlights Problems of Speculation

Faced with the growing popularity of Ethereum Name Service (ENS), Vitalik Buterin warns of the problems caused by speculation on domain names, for the DAO of the protocol. Thus, he proposed avenues for improvement, in particular through an annual tax system.

Vitalik Buterin wonders about the current shortcomings of the ENS

Ethereum Name Service (ENS) non-fungible tokens (NFTs ) have been on the rise lately, and this trend has not escaped Vitalik Buterin, the founder of Ethereum (ETH).

This highlighted the problems this could cause. In particular, he points the finger at speculators who buy many ENS in the hope of reselling them for a gain. According to his analysis, Vitalik Buterin also estimates that a majority of the 5-letter words present in the Scrabble list are already taken and that 40% of them are for sale or have been sold on OpenSea.

While this problem is still marginal, it could intensify in the long term. Indeed, registering an as yet unused ENS is cheap, so much so that it encourages the tendency to reserve names for speculative purposes.

This trend could therefore lead future users of this technology to turn to the secondary market since their preferred name would already be reserved. And it is on this secondary market that prices can explode upwards.

Vitalik Buterin then describes a scenario where many ENS would be dormant because their owner would not find an agreement on a sale price. This would thus lead to a loss of revenue for the Ethereum Name Service DAO, inflicting a loss of revenue for it to innovate.

On the other hand, if with a classic Domain Name Service (DNS), it is possible to redirect to an extension in “.com”, “.fr” or “.io” for example, ENS does not, by definition, allow than “.eth”.

Proposed solutions to work around the problem

Faced with this observation, Vitalik Buterin proposed ways to improve the current system. This could in particular go through an annual tax system, which would encourage people not to keep an ENS solely for speculative purposes.

After exploring several versions of this potential tax, one seems to present an interesting compromise.

This would consist of creating an auction system via a smart contract, in which potential buyers would place their stake. The mathematical function to calculate this tax would then take into account the highest bid to define an annual amount to be paid.

The owner of an ENS would then have the choice of paying this tax or accepting the offer of the highest bidder.

Such a system is certainly imperfect, but it is one of the development paths proposed by Vitalik Buterin to improve the functioning of the Ethereum Name Service. If the founder of Ethereum is aware that there are no miracle solutions to overcome the problems caused by excessive speculation, he hopes at least to bring some lines of thought.