A seemingly trivial service – providing human-readable names to crypto addresses – is becoming increasingly popular with the emergence of web3 and its new use cases. So much so, in fact, that NFT domains activity can itself become a way to measure the crypto market sentiment (which is a welcome alternative when prices crash across all markets).

How are NFT domains used?

Crypto naming services map a hexadecimal string of characters that compose a crypto address (like 0x71C7656EC7ab88b098defB751B7401B5f6d8976F) to an easily readable name (like john.eth), and sell it as an NFT, granting user a full and disintermediated ownership.

The first NFT domain use case was, unsurprisingly, easy transaction between peers. However, as web3 progresses, crypto naming services are gaining more importance, with some of the new use cases including:

Portable identity. A human-readable address allows a smoother interaction with web3 services, most of which do not store user data. These conditions are perfect to further explore the concept of self-sovereign identity: NFT domains can contain hashes of information, which can prove that a user owns data (passwords, certifications, vaccinations, ID… etc) without them having to reveal it.

Building reputation in web3. Human-readable names make it easier to trace the blockchain history of an address. Moreover, the associated NFT can contain the links to off-chain resources like Twitter accounts. Such data can tell a lot about the user behind the NFT, and help them build a reputation in web3 without necessarily revealing their official identity.

Censorship-resistant websites. An NFT domain can be mapped to a content hash, which, like an IP address, is a unique identifier for hosted content, but unlike IP, is not based on a location, but on the content itself. Pushing this idea further, one can upload a website to IPFS (a distributed P2P file sharing network), hash it (encrypt with a one-way math function), and embed the hash into an NFT – and that’s a censorship-resistant website.

This system is far from perfect though, for the website in question cannot be easily updated (changing the data means changing the hash), so for the moment many users just link their NFT domains to an existing website hosted on traditional services.

Ethereum Naming Service

ENS (short for Ethereum Naming Service) is the oldest and the biggest provider of NFT domains.

Launched in 2017 by Nick Johnson, an Ethereum Foundation developer, ENS started with a $1 million grant from the EF. On-chain data shows almost 40’000 ETH of cumulative sales since then (pey-per-year registrations), with the majority – 29’000 – registered since January 2022. ENS has created almost 2.2 million names, with over 1.9 million – since the beginning of the year.

Last year ENS airdropped to all its users newly minted ENS tokens, as part of its transition to a DAO-based governance.

Unstoppable Domains

Main ENS competitor, Unstoppable Domains, emphasizes the web3 aspect of its services. It encourages creating censorship-resistant websites hosted on IPFS: providing simple templates (no Wordpress for IPFS yet…), helping users through the process, and allowing an easy update of the IPFS hash in the domain management service each time the website is updated.

Unstoppable Domains are not part of the current ICANN/DNS system, which means that most browsers like Chrome would need a special extension. However, some browsers like Opera and Brave already support it natively.

Unlike ENS, Unstoppable Domains are bought for life. So far, it has minted over 1.5 million domains on Ethereum and Polygon, most popular being .crypto and .nft. Recently, the company also announced the integration with Skiff Mail, allowing users to send and receive end-to-end encrypted messages.

In July, Unstoppable Domains raised $65 million (series A led by Pantera Capital), which put the company valuation at $1 billion.

NFT domains are often compared to DNS (domain name service), which maps IP addresses to human-readable URLs. DNS did a great job in simplifying the use of the internet, but it was a product of its time, subject to censorship and other centralization flaws. NFT domains are simplifying the use of web3, while allowing people to control their own domains, and maybe even – some day – create a censorship-resistant internet.

NFT domains help line the web3, and at the same time they are useless without it, which makes them a litmus test of the state of web3 and market’s faith in it. So far the state of NFT domains bodes well for the crypto space.

Written by D.Center