Tokenized Domain

What Is a Tokenized Domain?

There are two types of tokenized domains: a blockchain-native name that resolves to a specific wallet and a Web2 domain that has been tokenized. 

Both tokenized domains are actively reimagining the process of buying, selling, and transferring web addresses as an intangible asset class.

How Does Tokenizing A Domain Work?

This process is different for blockchain-native names and tokenized Web2 domains. 

Blockchain-Native Domain Names

The process starts with registration using a decentralized naming service that will mint it as an NFT or token on a blockchain. There, the domain will be written into a smart contract, where the contract will determine the following:

• Who owns the domain,

• What conditions are needed to transfer it and, 

• Anything else associated with it. 

The contract acts as the authoritative record of who owns the domain. This ownership data is stored on the blockchain rather than in a centralized domain name service (DNS) database, creating a traceable record of ownership that is unalterable. 

Tokenized Web2 Domain Names

For a tokenized Web2 domain, the process is still heavily reliant on the existing DNS infrastructure. The user registering the domain must prove that they own the traditional version, which can be done through DNS TXT records or by verifying with the registrar. 

From there, similar to the blockchain-native name, a smart contract will then create a token that represents the domain and acts as a certificate of ownership. Then, to maintain the connection with the Web2 domain and the tokenized version, there will be bridge protocols. 

The key difference:

A tokenized Web2 domain needs constant verification to ensure the token holder owns the domain that exists outside the blockchain, while the blockchain-native name has the ownership embedded in the registration. 

What Are The Shortfalls Of Tokenized Domains?

Blockchain-Native Domain Names:

• Blockchain Navigation: Using a tokenized domain requires understanding of navigating crypto wallets, gas fees, and smart contract transactions. This represents a barrier to entry for a non-crypto native person who is curious about tokenized assets.  

• High Costs: Using a tokenized domain could mean incurring gas fees that can be even more expensive than Web2 domain registration fees. 

• Scalability Issues: A consistent problem that most of Web3 faces is scalability, which causes congestion and slower response times that hurt the user experience when the network is busy.

Tokenized Web2 Domain Names:

• Reliance on DNS: These types of tokenized domains will still rely on their Web2 infrastructure to power their Web3 domain, delaying a full transition.

• Centralized Infrastructure: While the domain name will be housed on a decentralized platform, centralized entities will continue the underlying infrastructure of the domain, site, or app. 

• Proving Ownership: With a Web2 domain that’s been registered on the blockchain, the owner will have to verify ownership of the domain consistently, which can be tedious for operating the domain.

What Are The Advantages of Web3 Tokenized Domains?

Blockchain-Native Domain Names:

• Decentralized Nature: A DNS domain relies on registrars and an IP address from ICANN, while blockchain-native tokenized domain names are more secure and free from outside entities like corporations or governments.

• Immutable Records: Blockchain-native domain names that are tamper-proof and permanent, which means users can prove ownership or historical records more easily than with Web2 DNS domains. 

• Blockchain Technology: Existing on the blockchain gives a tokenized domain the advantage of technologies like smart contracts, which can give them a technological advantage over traditional Web2 infrastructure.

• Human-Readable Addresses: Addresses in Web3 can be difficult for a human to read or remember (ex. 0x742d35Cc6634C0532925a3b8D404E3578f8f8), but with a tokenized domain, this can be changed to something much easier to understand (ex. nick.eth), making interactions with these domains easier. 

Tokenized Web2 Domain Names

• Better User Experience: When users are migrating from Web2 to Web3, they will not have an in-depth understanding of dApps or other Web3 entities, but familiar domains on Web3 will ease that transition for new users.

• Consistent Branding: As businesses migrate from Web2 to Web3, being able to tokenize their domain allows them to maintain their branding and name when making the transition, which will encourage the switch. 

How Do Tokenized Domains Enhance Web3?

Importantly, blockchain-native tokenized domains are the universal identifier for an individual, website, or entity on Web3. One way this enhances the user experience for blockchain-native names is by allowing for the same domain name across an individual’s wallet, NFT marketplaces, and decentralized social media sites. This allows for a more consistent presence in Web3 than it did in Web2, with different usernames for each site. 

Additionally, a blockchain-native tokenized domain allows users to truly own their Web3 presence in a way Web2 couldn’t. Along with the ease of being a universal identifier, the decentralized nature of Web3 allows for freedom from relying on centralized platforms. This type of tokenized domain shields users from companies that issue or revoke access based on ever-changing terms and conditions, holding the ability to delete a digital footprint at a whim. 

Meanwhile, tokenized Web2 domains allow for a familiar website or dApp that was also found on Web2, giving new users familiar destinations when first exploring Web3. a tokenized Web2 domain also allows websites or dApps to maintain their identity from Web2 when migrating onto Web3, making traditional businesses and institutions more likely to migrate to Web3.

Conclusion

Tokenized domains are a unique human-readable address name that identifies a website, decentralized app (dApp), or entity based on the blockchain. Tokenized domains take the shape of blockchain-native domain names or Web2 names that have been tokenized. By creating a Web3 domain name or turning traditional domain names into digital assets, tokenized domains enhance the user’s experience and demonstrate ownership over their digital identity. Tokenized domains allow users to fully realize Web3’s core promise of user control over digital assets and data, along with freedom from centralized entities. 

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Author: Nick Johnson is the Co-Founder and Lead Developer of ENS, a distributed, open, and extensible naming system based on the Ethereum blockchain. ENS addresses allow anyone to register a .eth domain, which they can then connect to multiple wallets and use across all of Web3.

Nick worked at Google for seven years as a software engineer debugging complex code and solving a range of production issues. Taking his Web2 expertise to Web3, Nick was an early adopter as an Ethereum Foundation software engineer from 2016 to 2018. His passion lies in building extensible, long-lasting systems open to all in his community, and ensuring future technology stacks operate as public goods. Nick envisions ENS becoming the naming system for every digital resource globally.