Vitalik Buterin highlights problems with speculation

Faced with the growing popularity of Ethereum Name Service (ENS), Vitalik Buterin warns of the problems caused by speculation on domain names, for the DAO of the protocol. Thus, he proposed avenues for improvement, in particular through an annual tax system.

Vitalik Buterin wonders about the current shortcomings of the ENS

Non-fungible tokens (NFT) Ethereum Name Service (ENS) are on the rise lately, and this trend has not escaped Vitalik Buterin, the founder of Ethereum (ETH).

This highlighted the problems this could cause. In particular, he points the finger speculators buying many ENS, in the hope of reselling them with a profit. According to his analysis, Vitalik Buterin also estimates that a majority of the 5-letter words present in the Scrabble list are already taken and that 40% of them are for sale or have been sold on OpenSea.

While this problem is still marginal, it could intensify in the long run. Indeed, registering an as yet unused ENS is cheap, so much so that it encourages the tendency to reserve names for speculative purposes.

This trend could therefore lead future users of this technology to turn to the secondary market, since their preferred name would already be reserved. And it is on this secondary market that prices can explode upwards.

Vitalik Buterin then describes a scenario where many ENS would be dormant, because their owner would not find an agreement on a sale price. This would thus lead to a loss of income for the Ethereum Name Service DAO, inflicting it a shortfall to innovate.

On the other hand, if with a classic Domain Name Service (DNS), it is possible to redirect to an extension in “.com”, “.fr” or “.io” for example, ENS does not, by definition, allow than “.eth”.

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Proposed solutions to work around the problem

Faced with this observation, Vitalik Buterin proposed ways to improve the current system. In particular, this could go through an annual tax systemwhich would encourage people not to keep ENS solely for speculative purposes.

After exploring several versions of this potential tax, one seems to present an interesting compromise.

This would be to create a auction system via a smart contract, in which potential buyers would place their stake. The mathematical function to calculate this tax would then take into account the highest bid to define an annual amount to be paid.

The owner of an ENS would then have the choice of paying this tax or to accept the proposal of the highest bidder.

Such a system is certainly imperfect, but it is one of the avenues of development proposed by Vitalik Buterin for improve the functioning of Ethereum Name Service. If the founder of Ethereum is aware that there are no miracle solutions to overcome the problems caused by excessive speculation, he hopes at least to bring some lines of thought.

👉 On the same subject – Ethereum Name Service domain names become the most traded NFTs on OpenSea

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Sources: Blog of Vitalik Buterin, Image: Twitter

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