The Market Structure

At the center of the domain name marketplace is ICANN, the non-profit entity managing the Internet Assigned Numbers Authority (IANA). The US government created IANA in 1988 to manage the allocation of IP addresses and the DNS root zone. Below the IANA are domain name registries. These are entities that control a particular top-level domain (TLD), such as com or net. Domain name registries are wholesalers for domain name registrars, retail marketplaces for domain names. End-users buy domain names from registrars who pay ICANN, the non-profit controlling the IANA, fees to operate.

Rampant Rent-Seeking

The multiple intermediaries within the marketplace combined with the complete privatization of ICANN allows private entities to profiteer at the expense of internet denizens. For-profit corporations own most TLDs, excluding infrastructure TLDs, many city TLDs, and some sponsored TLDs such as gov and mil. Registries often collude with ICANN to allow arbitrary increases on domain rental rates through exclusive contracts. The most egregious case was ICANN recently allowing Verisign to increase prices by 7% through 2029 with no gain for consumers. The mass proliferation of generic TLDs (gTLDs) has bolstered ICANN’s coffers while increasing the cost of doing business; superfluous novelty TLDs, such as sucks and xxx, force organizations to rent more domains to protect their brand. In 2011, there were only 22 gTLDs. 10 years later, that number is nearly 1500.

The next phase in the all you can eat rent-seek is predatory private equity firms. Ethos Capital’s attempt to buy the org TLD with. Their proposed contract included provisions giving them unilateral control over things such as:

• Registration fees
• Intellectual property protection mechanisms that enable censorship of NGOs
• Suspending domain names when third-parties make accusations that the domain renter is breaking the law

Private equity firms aren’t inherently pernicious, but they often maximize the returns to their investors while drowning the organizations they have in mountains of debt like parasites siphoning their host’s resources. This is because of poor regulatory oversight. Ethos is no different and is still at it.

Domain Squatting

The pricing structure for domains doesn’t encourage efficient use. TLDs have a fixed rate for most domains with higher, arbitrary prices for premium domains: typically shorter names that are easy to remember. Because of this, people can buy domains and refuse to use them with no consequences in most cases. This practice, called domain squatting, is prevalent and often prevents organizations from renting the domain they want. Domain speculation is a frequently practiced version of domain squatting. It involves someone purchasing a domain they think an organization might want in the future, then forcing them to pay a much higher price to use the domain.

Excessive Centralization

Because ICANN controls the IANA, they can heavily influence registries and registrars’ operations. This includes how they handle engagement with law enforcement and domain registration policies. Consequently, this enables censorship of anyone ICANN deems unsavory. In addition, ICANN claims to have multi-stakeholder governance but disproportionately favors wealthy and powerful organizations. These organizations have wielded their power in connivance with ICANN to copyright troll through the Uniform Dispute Resolution Policy (UDRP) and Uniform Rapid Suspension (URS).

Design Principles

The optimal domain name marketplace follows these principles:

• Decentralization
• Free from rent-seeking
• Secure and privacy aware
• Efficient allocation
• Readable names

Decentralization is Necessary

Giving one, mostly unaccountable organization control over internet naming is a risk to free expression and cybersecurity. Decentralizing the Domain Name System (DNS) is the best way to protect the internet from censorship and increase cybersecurity. The Tor network automatically generates a 56 character long onion address from the public/private key pair Tor generates for every onion service. Despite this allocation method achieving our goals of decentralization and good cybersecurity, it gives names that aren’t easy to remember. This dilemma is known as Zooko’s Triangle. It postulates that you may choose two of, but not all three of the following:

Some naming systems exist that avoid Zooko’s triange, such as Handshake. As we’ll see, it has a critical flaw.

No Rent-seeking Allowed

As discussed previously, the current domain name market is rife with rent-seeking. Unfortunately, so is Handshake. They replace rent-seeking by a small number of corporations to rent-seeking by many individuals. This is because of three reasons:

• Handshake allows for unlimited TLDs
• TLD owners can engage in domain speculation
• TLD owners can sell domains on their TLD at a profit

Furthermore, Handshake does nothing to prevent squatting by letting people own their domain as long as they pay a small biennial fee. The ideal system doesn’t allow for this waste.

Security & Privacy

The existing system of Certificate Authorities (CAs) is tenuous for verifiability. We need to have a distributed cryptographic blockchain like Handshake’s. Such a blockchain removes the single point of failure that CAs are.

Public-key cryptography should be used for verification instead of the large amount of personal information required by ICANN. While many domain registrars provide complementary privacy services that redact personal information, they still have all the information you’ve sent them. Even if you don’t care that your registrar has all your personal information, a hacker can compromise their databases and get it.

Allocation

Flat fees on their own with arbitrary markups for premium names works terribly. Handshake is an improvement because they have auctions for all TLD sales where the highest bidder receives the TLD. The best allocation method involves a concept called Harberger taxation. In the domain market, domain holders would pay a self-assessed rental fee annually. At any time, someone could trigger a snap auction where they try to buy the domain at the self-assessed cost.

Readable Names

We need a way for users to have short, readable names. Monero’s OpenAlias and IPFS’s DNSLink are good examples of achieving this while ensuring security and privacy.

Putting it Together

The ideal system uses a blockchain as a distributed public ledger of all transactions. The system would provide TLS encryption by default and have resistance to identity attacks, such as Sybil attacks. A Non-fungible token (NFT) would be used to verify title ownership and provide insurance over the domains. Prospective domain holders would set the price they wanted to buy the domain at and receive an NFT for the domain. If they wanted a domain that someone else had, they would offer to buy it at their self-assessed price. This action triggers an auction; if the challenger outbids the current domain holder, the NFT for their domain gets transferred to the challenger in 30 days. To avoid rent-seeking and increase access, the blockchain will disburse all funds received from domain holders’ self-assessment fees back to them as a flat dividend annually. This way, people who want low demand domains can use them at no net cost, while those who want lucrative domains will have to pay more. People could choose any name they wanted for a given TLD.

If we want a free and open internet for all, it starts with improving how we get domain names.