ENS

Most recent update: [June 26, 2023]  

What is Ethereum Name Services? (ENS)  

The Ethereum Name Service (ENS) is a naming service for wallet addresses, hashes, and other machine-readable identifiers. It turns difficult to read strings of data into easily readable addresses. It works similarly to the Domain Name System (DNS) used for websites. 

Initially, ENS auctioned popular six, five, four, and three-letter domain names to interested users using the Vickrey auction format. Each name with .eth at its end can be attached to multiple cryptocurrency addresses, hashes, and other information. ENS users can easily purchase names without an auction and rent them by the year. Prices are dependent on the length of the name they want to rent.  

The project allows users to display long Ethereum public addresses in a simplified text-based form. This makes it easier to share, use, and remember addresses and other data. Turning machine-readable numbers into human-readable alternatives is important for improving blockchain adoption. ENS is not just limited to wallet addresses. It can represent transactions IDs, hashes, and metadata, all commonly found in the cryptocurrency world.   

How Does Ethereum Name Services Work?  

ENS is built on two Ethereum smart contracts. The first smart contract is the ENS registry, which records all the domains registered on ENS and stores three critical pieces of information about each domain. This includes the owner of the domain, the resolver for the domain, and the caching time for all records under the domain.  

The second smart contract is the resolver, which translates the domain names to the machine-readable addresses and vice versa. This second smart contract matches each domain to the corresponding user, website, or address. 

Those wishing to create their Web3 username can visit the ENS app and start by searching for an available domain name. Once you find one, you’ll have to follow the registration process, which includes confirming two transactions from your wallet and paying the yearly fee. Once you own the domain, you can link it to your crypto wallets, websites, and create multiple subdomains - all connected under the same ENS domain. 

As ENS domains are limited, crypto natives are securing their nicknames, much like in the early days of DNS names. Some are even dabbling with ENS domain flipping, which can be a lucrative side hustle, considering that exchange.eth was sold for 6,660 ETH ($609,000), while weather.eth was sold for 300 ETH ($27,000) at the auction. 

ENS doesn’t just support .eth, but also the most popular DNS names including .com, .org, .io, .app, and more.  

History and Founders of Ethereum Name Services  

The ENS is built on Ethereum’s smart contracts, making it more secure, private, and resistant to censorship than the internet’s Domain Name Service (DNS). The team behind ENS sees internet-naming infrastructure as a fundamental component. Hence, the team has designed the protocol to be open, decentralized, community-driven, and not-for-profit.  

The ENS can use the existing Ethereum ecosystem on a technical level, making it highly programmable. It can also interact with other smart contracts outside of naming. 

The ENS Foundation is a legal entity that represents the DAO and provides legal support to DAO participants. The Foundation has three directors — Nick Johnson, Brantly Millegan, and Kevin Gaspar — who are also ENS core team members. 

The ENS Foundation is limited by guarantee and is incorporated in the Cayman Islands. It is a nonprofit and cannot pay dividends to its directors or members. The Foundation has one supervisor, filled by a Cayman Islands firm, DS Limited.  

What Makes Ethereum Name Services (ENS) Unique?  

The ENS (unlike some of its competitors) does not want to replace DNS. The ENS focuses first and foremost on providing distributed, trustworthy name resolution for Web3 resources such as blockchain addresses and distributed content.  

As a blockchain-based protocol, ENS is inherently more secure and censorship-resistant due to being built on Ethereum. ENS is essentially two smart contracts that enable peak interoperability with other smart contracts and the entire Ethereum ecosystem. 

ENS is the first service of its kind for crypto and blockchain addresses. Other services are trying to replace the old DNS for the internet, but ENS is currently the only player in its league that offers human-readable nicknames that can work across all your wallets, dApps, and decentralized websites.  

ENS transforms complicated strings of characters into short and memorable, human-readable links. ENS also makes crypto transactions more understandable and accessible for blockchain beginners. Similar services may appear in the future, but as of now, ENS does not have any comparable rivals. 

Ethereum Name Services (ENS) Token Supply Model  

Since ENS is an open-source, fully decentralized protocol, no single traditional company hierarchy manages it. ENS is community-governed as a DAO (decentralized autonomous organization). 

The ENS DAO is governed by the ENS token, the protocol’s utility and governance token used to submit proposals. The coin also facilitates voting to influence the protocol’s future development. Anyone holding ENS can cast their votes for propositions on the ENS DAO. 

ENS is an ERC-20 token. It has a maximum supply of 100 million coins and a circulating supply of 19.6 million. Of the total ENS supply, 25% was airdropped to ETH holders, 25% went to ENS contributors, and the remaining 50% was allocated to the ENS DAO.  

Future Roadmap of Ethereum Name Services  

The ENS DAO has attracted significant interest to the protocol, as it airdropped 25% of the total token supply with the launch of the DAO on November 9, 2021. The ENS token quickly gained traction among investors as its market capitalization soared past the US$1 billion mark on November 10, only a day after the launch of the ENS DAO. 

The ENS protocol plans to integrate the DNS namespace, meaning that owners of any internet domain can claim them on ENS. This will position ENS as a parallel extension of DNS, creating cross-platform Web 3.0 usernames that will become a core component of our decentralized identity. Because it makes the blockchain and crypto world so much more accessible to beginners, it is becoming a fundamental component of the future crypto space.  

Risks Associated With ENS  

ENS has gained gradual popularity over the past few months, mainly due to its distributed and open nature that ENS domain names can be set to any kind of records, even censored and malicious contents. However, experts have identified several security issues and misbehaviors including traditional DNS security issues and new issues introduced by ENS smart contracts. Attackers have reportedly abused the system with thousands of squatting ENS names, a number of scam blockchain addresses and malicious websites, etc.  

However, it is noteworthy that the ENS team is working towards building an open and trustworthy name service. 

Due Diligence  

Prior to listing Ethereum Name Service on the VirgoCX Platform, VirgoCX performed due diligence on Ethereum Name Service and determined that Ethereum Name Service is unlikely to be a security or derivative under Canadian securities legislation. VirgoCX’s analysis including reviewing publicly available information on the following:  

• The creation, governance, and location of Ethereum Name Service and/or its primary development team; 
• The supply, demand, maturity and liquidity of Ethereum Name Service; and 
• Legal and regulatory risks associated with Ethereum Name Service.  

Statutory Rights under Securities Legislation 

VirgoCX is offering Crypto Contracts on crypto assets in reliance on a prospectus exemption contained in the exemptive relief decision Re VirgoCX Inc. dated May 30, 2022 (the Decision). Please be aware that the statutory rights in section 130.1 of the Securities Act (Ontario), and, if applicable, similar statutory rights under the securities legislation of each other province and territory in Canada, do not apply in respect of the Crypto Fact Sheet to the extent a Crypto Contract is distributed under the prospectus relief in the Decision.