What is ENS (Ethereum Name Service) and how does it work? Everything you need to know

In the complex world of cryptocurrency, newcomers and those less familiar with technology can find it daunting to get started. For instance, conducting crypto transactions typically involves using lengthy, alphanumeric public wallet addresses that can appear confusing. Additionally, managing multiple public addresses for different cryptocurrencies adds to the complexity, especially for beginners.

Enter Ethereum Name Service (ENS), a solution designed to simplify the crypto and decentralized finance landscape. ENS allows users to create a single, universal nickname for all their public addresses and decentralized websites. Instead of dealing with a string of incomprehensible characters for each crypto address, users can have a unified ENS domain, such as "Rick.eth," where they can receive various cryptocurrencies and NFTs.

ENS strives to establish itself as the naming protocol for the decentralized internet by offering portable Web 3.0 usernames that work across all blockchains and decentralized applications (dApps). To grasp its significance, let's delve into how ENS operates.

What is ENS?

In essence, ENS operates as a naming and lookup service integrated into the Ethereum blockchain, enabling crypto users to convert their machine-readable addresses into human-readable ones. It functions as a sort of nickname generator for public Ethereum addresses, with the goal of simplifying crypto usage.

For instance, if a friend wishes to reimburse you for dinner in cryptocurrency, you typically need to provide your Ethereum public address, comprising 42 hexadecimal characters, such as “0xDC25EF3F5B8A186998338A2ADA83795FBA2D695E.” This address functions similarly to an IBAN, allowing others to transfer crypto to your wallet. However, ENS allows you to create a user-friendly "nickname" for your public address. Instead of sharing the complex string of characters with your friend, you can provide a link, such as “Rick.eth,” which automatically links to your public address.

In addition to Ethereum addresses, ENS provides human-readable domains for various crypto wallets, websites, content hashes, and metadata. Its goal is to function as your Web3 username, consolidating all your addresses and websites under a single nickname. This allows you to receive any type of cryptocurrency or NFTs through your ENS domain.

According to the ENS Documentation, the protocol describes itself as “a distributed, open, and extensible naming system” that delivers decentralized, blockchain-secured domain naming and look-up services. Being decentralized means that ENS is not governed by a single entity, enhancing its security compared to centralized naming services by eliminating a single point of failure.

How does ENS work?

ENS operates through two Ethereum smart contracts. The first contract, the ENS registry, maintains a record of all domains registered on ENS, storing essential details like domain ownership, resolver information, and caching duration for domain records. The second contract, known as the resolver, facilitates the translation between domain names and machine-readable addresses, ensuring seamless connectivity between domains and corresponding users, websites, or addresses.

To create a Web3 username through ENS, users can access the ENS app to search for an available domain name. Once a suitable domain is found, users can proceed with the registration process, which involves confirming two transactions from their wallet and paying an annual fee of US$5 for names longer than five characters. After acquiring the domain, users can link it to their crypto wallets, websites, and even create multiple subdomains, such as email.rick.eth or website.rick.eth — all centralized under the same ENS domain.

Due to the limited availability of ENS domains, enthusiasts in the crypto community are rushing to secure their desired nicknames, reminiscent of the early days of DNS names. Some individuals are even engaging in ENS domain flipping, a potentially lucrative endeavor. Notably, domains like exchange.eth were sold for 6,660 ETH (US$609,000), while weather.eth fetched 300 ETH (US$27,000) at auction.

It's worth mentioning that ENS supports not only the .eth extension but also popular DNS names like .com, .org, .io, .app, and more.

What is the ENS token?

ENS operates as a decentralized protocol, governed by a community-driven DAO (decentralized autonomous organization), rather than a traditional company structure. The ENS token plays a central role in the governance of the ENS DAO, serving as both a utility and governance token. Holders of ENS tokens have the ability to propose and vote on initiatives that shape the future development of the protocol.

As an ERC-20 token, ENS is currently trading at US$51.08 and ranks as the 110th largest cryptocurrency by market capitalization, totaling US$1.1 billion. With a maximum supply of 100 million coins and a circulating supply of 19.6 million, ENS tokens were distributed as follows: 25% through an airdrop to ETH holders, 25% allocated to ENS contributors, and the remaining 50% assigned to the ENS DAO.

What sets ENS apart from other protocols?

ENS serves as the Web 3.0 equivalent of DNS, providing a decentralized alternative to traditional internet naming systems. Built on Ethereum's blockchain, ENS boasts inherent security and resistance to censorship. Comprising two smart contracts, ENS ensures seamless interoperability with Ethereum-based smart contracts and the broader ecosystem.

As the pioneering service for crypto and blockchain addresses, ENS stands out by offering human-readable aliases that streamline interactions across wallets, dApps, and decentralized websites. By simplifying complex addresses into memorable links, ENS enhances accessibility for newcomers to blockchain technology. While other services aim to replace traditional DNS, ENS remains unmatched in its comprehensive solution for blockchain address management.

What implications does ENS have for the cryptocurrency sphere?

ENS positions itself as a community-driven public utility, showcasing its potential to become a crucial infrastructure within the crypto and Web 3.0 ecosystem due to its decentralized nature and community governance. By simplifying crypto usage and accessibility, ENS addresses a significant barrier to adoption, transforming lengthy machine-readable addresses into memorable links for transactions, dApp interactions, and receipt of various cryptocurrencies and NFTs. Moreover, it aims to unify individuals' wallets, websites, and subdomains under a single link, enhancing user-friendliness and reducing technical complexity. The ENS DAO's launch garnered substantial attention, with a significant portion of its token supply airdropped, leading to rapid market capitalization growth. While the ENS roadmap currently extends to 2021, plans include integrating the entire DNS namespace, allowing ownership of internet domains on ENS. This move positions ENS as an extension of DNS, offering cross-platform Web 3.0 usernames essential for decentralized identity. As it facilitates blockchain and crypto accessibility for novices, ENS emerges as a pivotal element in the future crypto landscape.