Change Is Coming: How the Blockchain Will Transform the Domain Name Business

Put the word "blockchain" together with the acronym "DNS" and what do you get? Just like that 1980s commercial in which chocolate collides with peanut butter, you get a result that's really quite remarkable — blockchain-based domain names. This new hybrid could change the way the system works in important ways.

The term "blockchain" refers to the underlying technology that powers Bitcoin, a distributed data store that achieves a state of consensus. Every node on the network will agree about the historical facts, with minimal reliance on trusting central authorities.

The Domain Name System (DNS) is used every time you interact with resources on the Internet. This system allows us to turn easy-to-remember names such as "Cointelegraph.com" into useful IP addresses such as "141.101.125.184". Your computer needs the latter, but you can more easily remember the former. DNS provides this mapping function between names and addresses, much as a phone directory lets us look up a person's phone number, given their name.

Hey, You Got Blockchain on My DNS

The current DNS is a distributed network that lets machines easily find IP addresses. The DNS is operated according to rules established by the Internet Corporation for Assigned Names and Numbers (ICANN), the organization that approves new top-level domains (TLDs), such as .com. It awards the contracts to registry operators, such as Uniregistry, who operate the TLDs, and accredits registrars, like GoDaddy, who sell the rights to use domain names.

The current system is hierarchical in nature, both technically and politically. Technically, this system's root servers (think central database) represent a high-value attack vector, and a single point of failure that could by itself take down large chunks of the Internet with a single incident, as threatened by Anonymous in 2012.

Politically, the decision-making power is concentrated within the governing body making the rules of operation and letting the contracts. This represents a source of significant risk in terms of potential for corruption, and is susceptible to coercion by those entities with great power.

There is plenty to say about the benefits to consumers that next-generation Domain Name Systems will provide, and plenty more to be said about the impacts on individual privacy, Internet security, domain name thefts and seizures, and on basic human rights issues, such as freedom of speech. However, I'd like to focus today on the impact these systems are likely to have on the domain industry.

Registries Operate the DNS

Registry operators run or oversee the operation of root servers. They are the authoritative source of information about where to go to resolve all domain names for a given TLD. Think of this as a large, central database for domain name information. They are obviously constrained by their contractual obligations to ICANN. They are also constrained by the legal frameworks under which they operate.

Registry operators establish guidelines by which they will conduct the launching of new TLDs. National governments and large corporations apply considerable pressure to put mechanisms in place to protect their own interests.

In order to prosper within the system, registry operators currently need to satisfy these most powerful stakeholders. Before general registrations are allowed, registries administer sunrise periods, where those with registered service marks and intellectual property concerns can have a chance to secure the names they want.

Similarly, governments want to collect accurate contact information for registrants. This makes it possible to take action against registrants, which can be useful in many contexts, but can also be easily abused by governments determined to stifle dissent or control the flow of information within their borders.

The Blockchain Offers New Flexibility

Registry operators are going to find increased flexibility and more varied opportunities when they begin to launch new blockchain-based TLDs. The result will be the ability to tailor a TLD to specific market niches more effectively. They will be able to "bake the rules into the code" and customize a TLD for specific use cases, even if powerful constituencies may be strongly opposed.

A registry operator may, for example, decide in the case of one TLD to make all contact information optional, making it possible to have domain names that cannot easily be seized by governments or stolen by thieves. Alternately, they could decide to enforce stringent contact-info requirements, which would allow strong claims to be made about the website operators in that TLD. Registries will be empowered to draft the rules of operation according to the needs of the market being served, as opposed to doing what it takes to get approval to launch.

Variable pricing schemes become much more viable, too, as pricing can become a function of a carefully crafted algorithm that reflects the registry's priorities. If they are concerned about the rate at which two- and three-letter strings are registered, they can simply tweak the pricing algorithm to reflect those values. Perhaps the registry wants to use a sliding-price model for most domain names in a TLD, where the registration cost is reduced each day until a target is reached, as Emercoin did. Or perhaps for those two- and three-letter domain names, they want to utilize an auction-style pricing model, as Bitshares does. Such priorities are easy to implement via blockchains, and require no approval from anyone.

The Blockchain Could Reduce Operating Costs

Currently, decisions about launch parameters must be approved by ICANN and be implemented by written, enforceable policies. In the future, these parameters could and will be written not as clauses in legal contracts, but in code! The result will be the elimination of ambiguity, less legal wrangling, and more flexibility for the registries.

Registry operators face the prospect of significantly lower-cost structures as well. Marginally profitable operations, or even those operating at a slight loss, may look viable if migrated to a blockchain. With no compliance costs and the elimination of expensive interaction with ICANN, the cost to operate a TLD ought to be reduced significantly. 

Paired with variable pricing and auction models, registry operators will have greater control over costs and more pricing options than ever before. This should translate into more varied offerings for consumers and more room for innovation from those who operate TLDs.

Isn't DNS Dead Yet?

Governments could launch TLDs with the specific intention of using them for voting and fairly distributing benefits. Human rights organizations could launch them to promote free speech online, or encourage whistleblowers. Innovative companies could identify market opportunities and launch TLDs specifically crafted for a particular niche.

Perhaps the most important change will be the ability of small operators, or even individuals, to launch TLDs for whatever purpose they want. It could be that services involved with coordinating networks of smart, connected devices will launch limited-access TLDs in order to control upgrades, enable hardware leasing, or any number of other purposes that are hard to predict today.

Despite the claims from many that a perfect storm of factors is making domain names obsolete, the indicators suggest otherwise. The naysayers cite the prominence of mobile apps, and the convenience of things like Facebook pages, Etsy stores and more. But after basically stagnating since the late 1990s, the Domain Name System is about to undergo big changes. Stick around, DNS is not done.

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