Why is the on-chain address "translator" ENS so popular?

Recently, the airdrop of Ethereum domain name service provider ENS has become a hot topic of discussion in the crypto community.

Since the ENS domain name airdrop was announced on November 2, 2,535 ETH has been burned in the ENS application interaction GAS fee alone in the past seven days. After it was opened for collection on November 9, it caused congestion on the Ethereum chain in a short period of time. The GAS fee for each Ethereum transaction has remained around 0.04 ETH in recent days, which is about US$150. This shows the popularity of the ENS domain name in recent days.

After the ENS airdrop was claimed, it was first launched on the decentralized exchange Uniswap, and the price quickly formed in the secondary market, reaching $30 at one point. Subsequently, major centralized trading platforms such as OKEx and Binance followed suit. On November 10, the price of ENS hit a new high, reaching $86, and then fluctuated around $65.

The crazy price of ENS has aroused people's imagination, and many people even believe that ENS will reach $100, and Fomo sentiment has emerged. After the airdrop and trading fever, it is the best time to truly test the application of ENS.

Why does ENS make users so excited? What problems does Ethereum domain name solve? What role does it play in the field of blockchain network? This issue of DeFi Cell will give an overview of ENS applications.

What is ENS?

ENS stands for "Ethereum Name Service" and is a decentralized domain name service provider built on Ethereum. ENS can convert Ethereum addresses into characters that are easy for humans to remember and recognize, forming Ethereum domain names ending with ".eth".

ENS was founded in May 2017. It is an ecological project incubated by the Ethereum Foundation. The original creator and developer is Nick Johnson. It is currently managed and developed by a non-profit organization called True Names LTD. According to the ENS official website, the number of registered domain names has reached 420,000 and the number of users has exceeded 160,000.

So what problem does ENS solve?

To better understand ENS domain names, we can first look at how traditional Internet domain names work.

As we all know, Internet domain names are generally website names with suffixes such as ".com", ".org", ".me", etc., such as baidu.com, taobao.com, etc. These websites are identified and used by netizens in the form of domain names, and computers actually only recognize IP addresses composed of decimal numbers. However, since this kind of IP address with a combination of numbers is difficult to remember and inconvenient for users to use, the reason for the birth of domain names is to convert digital IP addresses into a language that is easy for humans to read.

In the real world, the most famous domain name server is DNS (Domain Name Server), which is a server that converts domain names and their corresponding IP addresses. When we enter "xx.com", "xx.cn" and other URLs on the Internet browser to access web pages, the DNS domain name server automatically translates the website domain name we entered into the corresponding IP address like a "translator", thereby calling up the corresponding web page.

After understanding traditional Internet domain names, it is not difficult to understand ENS. It runs in the blockchain network. Its main function is to translate Ethereum addresses composed of random numbers and letters into domain names ending with ".eth". Each domain name ending with ".eth" can also resolve the corresponding Ethereum address. It can be said to be the "translator" of the on-chain address.

Ethereum address starts with 0X and is a series of uppercase and lowercase letters and numbers. The general address length is 42 characters, which is not only difficult to remember and difficult to read, but also easy to make mistakes during use. When transferring, recharging and withdrawing assets generated by blockchain, it is often a mistake to miss a character or enter a wrong character, resulting in transaction failure or transfer to the wrong account, resulting in asset loss, which is theoretically impossible to recover.

Traditional Internet products allow users to register accounts with simple usernames, mobile phone numbers or email addresses to manage and use products. If blockchain is to become popular, the addresses on the chain also need to be optimized and turned into a language form that is easy for users to recognize in order to improve the user experience.

To put it simply, ENS is about solving the readability problem of on-chain addresses. It translates on-chain addresses into a way that is easy for ordinary people to recognize and use, and parses a series of disordered characters into the domain name language "xx.eth" that Internet users are already accustomed to.

"vitalik.eth" domain details

Ethereum founder Vitalik Buterin's wallet address is a 42-digit number and letter expression. On ENS, it can be directly converted to "vitalik.eth". If you want to transfer money to Vitalik on the chain, you don't need to enter the 42-digit address, just enter "vitalik.eth" and ENS will automatically help you find his address wallet.

ENS domains will become on-chain identities

The on-chain address "translator" ENS provides a good address management tool for Ethereum users, allowing us to name our own domain names according to our favorite characters. So, how can we get a ".eth"?

It is very simple. Just connect your Ethereum wallet to the ENS official website and enter the characters to register. The first registration requires an annual registration fee. The annual fee varies depending on the number of characters. The fewer characters, the more expensive it is. All fees are paid in ETH. If the domain name expires and you still want to own it, you need to renew it like an Internet domain name. It should be noted that since ENS is built on the Ethereum chain, the on-chain GAS fee that needs to be paid for registering an ENS domain name is very expensive. In recent days, the GAS fee for each transaction has been around US$150.

In addition, ENS domain names are built based on Ethereum's ERC-721 standard, so each ENS domain name can also be regarded as an NFT. This means that you can manage ENS domain names just like holding and using NFTs, and it also allows trading and transfers. Therefore, many people put ENS domain names up for sale on the NFT trading market OpenSea after registering them, hoping to find buyers in need.

After successfully registering the ".eth" domain name, users can set up reverse resolution to convert the Ethereum address into a domain name, which is convenient for future records and transfers. After the reverse resolution is successful, when you connect your wallet on the DApp application interface on the chain, the expression of the domain name "xxx.eth" will be displayed, instead of the lengthy address starting with "0x".

"Simplifying on-chain transfers and payments" is one of the more important uses of ENS domain names. It is not only applicable to ETH addresses, but also currently supports LTC, DOGE, BTC and other addresses. If you want to transfer these assets to another party, you do not need to enter any address, just enter the other party's ".eth" domain name.

In addition, you can also bind your domain name to your social account, email and other Internet accounts, and the address of the NFT work you purchased can also be recorded on the domain name, or set as your ENS domain name avatar. The right to use this ENS domain name belongs to you, you control your personal information and data, and can bring it to every Ethereum DApp application and service you use.

In addition, the ENS domain name can also be the name of a decentralized network or decentralized application. Although many on-chain applications are currently called decentralized applications, the website domain name is still a centralized domain name. With the development of decentralized applications and the popularization of infrastructure, the names of decentralized applications and websites may be expressed in decentralized domain names for users to identify and retrieve.

On October 9, an unknown wallet purchased the ENS domain name paradigm.eth for 420 ETH (about 2 million US dollars), and Paradigm happens to be a well-known venture capital institution in the crypto field. For example, the website "Uniswap.org" of the decentralized exchange Uniswap, which has the largest trading volume and popularity, is currently a centralized domain name, and the future website may be "Uniswap.eth".

It can be predicted that blockchain domain names such as ENS will become a way for participants on the chain to express their identities.

ENS's strict airdrop management is praised by the industry

Although the ENS domain name is a veteran project created in 2017, it did not emerge so early in the bull market of the crypto market that started in the second half of 2020 until it started the airdrop of its native token ENS.

On November 2, Ethereum domain name service provider ENS announced the creation of a decentralized autonomous organization (DAO) and the release of the governance token ENS, planning to transfer the governance of ENS to the community. The scope of DAO governance includes voting to appoint or remove ENS team members, decision-making control of the ENS community treasury, control of future income funds, and the ".eth" domain name registration mechanism and pricing power, etc.

In addition, users can apply to become the DAO governance representative of ENS. It is reported that on November 6, Coinbase, the world's largest trading platform, applied to become the governance representative of ENS decentralized autonomous DAO.

The total number of governance tokens ENS issued is 100 million, of which 25% will be airdropped to addresses that have registered ENS domain names; another 25% will be airdropped to community members who have contributed to ENS in the past five years, including managers of the Discard community; the remaining 50% belongs to the ENS DAO organization. The scope of this airdrop is all addresses that have registered ENS domain names before November 1. On November 9, users holding these addresses can officially apply to receive them.

On November 9, after the airdrop began, the price of ENS quickly formed on the decentralized exchange Uniswap, reaching a high of US$30. Subsequently, major centralized trading platforms such as OKEx and Binance also launched ENS. The wide trading market made the value of this token reach a maximum of US$86.

If we calculate based on the average airdrop of 100 ENS per person, the profit of each user who received the airdrop is about 50,000 yuan. For a time, various news and screenshots of profiting from ENS airdrops spread throughout the crypto community. Widely circulated is the "get rich story" of an ENS volunteer named Yaya, who is a Discard member of the ENS community. It is said that he received 49,296 ENS airdrops. If each ENS is calculated at 80 US dollars, Yaya's profit from this wave of airdrops is 3.94 million US dollars. This legend of getting rich from huge airdrops circulated on social platforms, and also quickly increased the popularity of ENS domain name service providers.

In addition to the wealth-creating effect of ENS, the project's strict management of airdrops has also been praised by the industry. On November 4, a user said on Twitter that he found that before the domain name ENS released the airdrop message, about 700 independent addresses registered a large number of ENS domain names by depositing 0.1 ETH per address in order to win the airdrop. Obviously, this is to increase the volume and make money.

However, the project did not allow this to happen. Nick Johnson, the core developer of ENS, responded on Twitter that these addresses have been blacklisted. This means that these addresses will not be able to receive ENS airdrops.

So, what are the lessons that project owners can learn from ENS airdrop distribution and management?

The weight of ENS airdrop is calculated mainly by account rather than domain name. The amount of ENS airdropped = 0.27*number of days holding the ENS domain name + 0.067*number of days until the domain name expires (up to 8 years). If the account has additional reverse resolution, the amount of the above airdrop will be multiplied by 2.

Such airdrop rules make the weight of airdrop accounts based on account addresses rather than the number of registered domain names, thus avoiding speculators who speculate on domain names. In addition, the number of days the ENS domain name is held identifies those who are looking to grab airdrops, because those who grab airdrops often have the behavioral characteristics of swiping multiple domain names in a short period of time. The "number of days" rule makes the airdrop weight tend to favor real users who registered ENS domain names early on. The rule of "doubling the number of airdrops if reverse resolution is set" further reduces the weight of speculators and is also a way to identify real users, while making the number of airdrops more fair and scientific, because the conversion process from reverse resolution corresponding to the address to the domain name not only requires GAS fee expenditure, but more importantly, one ENS domain name account can only correspond to one address. Often, only real users who use the domain name will set up reverse resolution. Even if multiple domain names are registered, only one domain name will have reverse resolution set up.

Judging from this airdrop calculation method, the ENS domain name service provider seems to be more willing to distribute the ENS token to the real users of the domain names and community contributors, rather than speculators who speculate on domain names and those who take advantage of airdrops to increase the volume.

Large-scale airdrops, a fair airdrop mechanism, and token price carnivals made the ENS domain name service instantly popular. The brand effect increased with the increase in attention, and of course, market Fomo sentiment was bound to emerge.

As a blockchain application with valuable tokens, the market will test ENS only after the popularity gradually cools down over time. After all, the popularity gained due to the wealth effect brought by airdrops often disappears quickly. The popular NFT project Loot once became popular in the market due to airdrops and the issuance of the governance token AGLD, but after the popularity, Loot's ecological development did not continue.

ENS is currently the "flower queen" of the domain name application sector on the Ethereum chain, and whether the domain name track on the chain will flourish like DEX, machine gun pool, and lending still needs time to test. It can be foreseen that in a multi-chain structure, various projects imitating ENS domain name services will appear. At that time, each chain will establish its own domain name service system. The existence of cross-chain also makes the mutual identification of domain names a technical challenge. For users, managing various domain names will become a hassle.