Last November, a crypto project that uses NFTs achieved a billion-dollar valuation seemingly overnight. Following a massive airdrop to its early adopters (that’s slang for parachuting free tokens into wallets), the project itself rapidly grew its market capitalization, rising from $500 million or so to over a billion dollars just days later.
Sounds just like another flash in the pan NFT project selling overpriced profile pictures, right? Not so fast. The project in question is the Ethereum Name Service, a system that uses NFTs to let users own a unique Ethereum address (or over 100 other cryptocurrencies) that isn’t a random jumble of letters and numbers. The tokens being airdropped were ENS tokens, which allow holders to govern the platform by proposing and voting on changes.
The project’s reach (and the power of its tokens in a vote) was recently swept into the spotlight thanks to a scandal involving its former operations director Brantly Millegan. Millegan, a self-professed devout Catholic, was fired from his role after a tweet surfaced in which he espoused anti-gay and anti-trans views. Many people involved in ENS said he did not represent the organization’s mission of inclusivity.
So, while at first glance, it may not sound like a billion-dollar opportunity, the project’s details show that the real value of NFTs might have nothing to do with fine art or profile pictures. The tokens can have value derived from utility and other non-collectible uses – and it could make them a key part of the Web3 revolution.
A brief history of ENS (and NFTs)
The ENS system is so old that it actually predates the Ethereum token standard that most NFTs use today. Like some of the very first NFT projects, including CryptoPunks, DADA NYC’s ‘Creeps and Weirdos’, Etherocks, or early CryptoKitties, the project’s aim was simply to create a unique token for a user.
Here’s how the since ousted Millegan explained it in a blog post: “When it launched, it was the beginning of the first Ethereum bull market, initiated by a number of big ICOs promising big dreams, but there were few practical smart-contract applications. We didn’t even have words like Defi or NFT.”
But besides being older, what exactly does the project do that makes it different from the NFT collectibles that have gotten so much attention?
When you register a certain ENS domain, styled as username.eth, you pay a fee to the ENS protocol to own that domain for a period of time. The prices are set at the ETH equivalent of $5 for a year for names with more than five characters. The fewer characters in the name, the more expensive it is.
Once the fees are paid and the name is registered to a certain Ethereum address, the user has control over that ENS domain-name. Ownership of the name is in turn controlled by an NFT of that domain-name, so holding the NFT in your wallet means you control that domain-name.
Buying, selling and owning identities
Despite the unique utility of these tokens, ENS NFTs now operate the same way as other NFTs in the marketplace because as the token standard for NFTs (something called ERC-721) developed and gained adoption, ENS went along with it, migrating to the new standard in May 2019.
That means ENS tokens work like other NFTs, and people can list their ENS domains on NFT marketplaces like OpenSea, just as they would any piece of cryptoart.
So far, the market for them isn’t huge compared to other major NFT projects. OpenSea currently shows that there are over 500,000 ENS names listed for sale, with a trading volume of about $6 million over the last 90 days. The floor price on ENS names is 0.01 ETH or about $25. These numbers are low compared to a top NFT collection like Bored Ape Yacht Club, which did nearly $550 million in volume in the last 30 days alone, according to NonFungibles.com. The floor price on BAYC is a sky-high 85 ETH, or over $200,000.
But the ability to buy, sell and hold ENS names, and the fact that they are interoperable with the rest of the NFT world, unlocks a host of new features. Chief among them is the ability to have a singular, portable identity.
One of the problems on the internet today is the fact that identity is fragmented across multiple platforms: you may have one username on Instagram that’s different from your username on Google or Roblox. This identity fragmentation is partly caused by the economics of the current web. Platforms are incentivized to keep you there, and not to share your data and identity with others. As such, they erect walled gardens for their users.
Web3, however, promises to liberate users from these walled gardens. One of the ways to do this is by letting users, not platforms, own their identities. In some sense, this already happens with basic crypto wallets: You can look up all the transactions a wallet address ever made because they’re all recorded permanently on a blockchain.
Wallet addresses are unreadable jumbles of characters, though, and systems like ENS increase usability by making them human-readable. Taking things a step further and turning those ENS names into NFTs that can be traded means that markets can now be created around those identifiers. And because these identifiers are owned by their users, not third-party platforms, they hold the promise to be universal identifiers on blockchains.
The login of the future
The idea of using these universal identifiers has been described as “login with Ethereum” by Vitalik Buterin, the blockchain’s inventor. Just as we might use Facebook or Google log-ins today to access a variety of non-Google or Facebook services, in the future we might use our Ethereum wallets to sign-in and identify ourselves to services. The difference is that we control our wallets, rather than having Google and Facebook set the terms.
Buterin promoted the idea of social networks anchored by Ethereum log-ins at a conference in Paris last year. The hope is that these networks would eliminate surveillance by the social media platforms and encourage high-quality discourse. They would also prevent platforms from being the ultimate arbiters of who gets to post, eliminating the issue of deplatforming.
If this happens, systems like ENS would form the foundational layer of Web3 – literally being the names we represent ourselves with.
Of course, financializing your identity has its downsides. Domain-name squatting remains an unresolved problem with ENS, just as it continues to plague our old-fashioned, Web 1, systems. Tying names to NFT markets also creates the potential for them to be gripped by speculative crazes. Squatting and trading ENS NFTs was a thing last year.
Still, if Web3 is going to have a shot at mainstream adoption, projects like ENS need to boom in popularity. A human-readable Web3 address has to be the first-step into our metaverse future.