Namecoin — The First Altcoin

19.10.2018

TL;DR. Ecology:3. Technology:6. Decentralization:5. Valuation:8. Rating:6/10

Introduction

Namecoin (NMC) was introduced on bitcointalk.org by user vinced (who later on disappeared) as early as 18th of April 2011. It was the first ever altcoin in existence, and must be said to have started something big in that regard. The project is a continuation of the bitDNS discussions that had been had with respect to Bitcoin; instead of having a central authority like ICANN (Internet Corporation for Assigned Names and Numbers) in control over the DNS, the idea was to mold this process in to Proof-of-Work mining, where a number of name slots were to be released with every block. Each of these slots could be used by the miner of a block to register any free .bit domain.

The problem Namecoin arguably solved with this mechanism is Zooko's triangle, a trilemma that states that names of participants in a network protocol can't have the three following properties simultaneously: human-meaningful, secure and decentralized. The supposed trilemma is the reason why the DNS today is administered by a central authority that maps domains to IP addresses. Namecoin developers and supporters saw flaws with the current DNS in the fact that state agencies can shut domains down. The fact that the domain-IP mapping occurs within a decentralized blockchain makes such censorship much harder as a censor then need to take control over the globally distributed blockchain. This realization was picked up by for example WikiLeaks. A good real-world example of this type of censorship is when a French court ordered all internet service providers to block access to The Pirate Bay. Or when the Spanish government promptly seizing referendum.cat/ during the recent Catalonian protests.

Despite being a very good idea in theory, the implementation of a decentralized, self-sufficient DNS protocol is a hard thing to get right from the beginning. In December 2013 at block 150 000, an emergency hardfork occurred as a critical bug just had been discovered. The bug made it possible for an attacker to take over domains and so invalidated the whole point of the Namecoin blockchain. The bug was patched and no serious damage had been done to the domain registry. As time passed, developers came and went, prompting sporadic questions whether the project had a future or not. Client versions continued to improve however, and registering -bit domains with NMC became easier by time. Actually browsing those domains however is and has always been user unfriendly.

On the 16th of December 2014, the block rewards were cut in half to 25 NMC per block. Almost 4 years later, the next halving occurred, reducing block rewards to 12.5 NMC. The most recent core client release is Namecoin Core 0.16.3 which patched the serious Bitcoin Core bug that was found earlier in September.

The project never had a crowdsale, ICO or premine whatsoever, and core developers of the chain seems strictly against most of those practices. All NMC have been distributed organically through regular Bitcoin merged mining. At time of writing, just under 15M NMC are circulating. Since the issuance schedule mimic that of Bitcoin, Namecoin has a maximum cap of 21M NMC. Some NMC have been burned already as users have registered names during the chain's first few years of operation. These registration network fees started out at 50 NMC and later dropped towards zero. Right now, a registration fee of 0.01 NMC per name is active, but the fee is not burned, only locked up.

Ecology

Initially, utilizing Namecoin was a technical nightmare for many. Registering domains and renewing them was simply just not an easy thing to do, with few guides or experts out there to help. To later browse the .bit domains was also a hassle, leading to a low number of users actually visiting .bit webpages. For Namecoin to be really useful, there has to .bit plugins to all major internet browsers out there, or a Mist-like browser that Ethereum has. Adaptation by popular torrent sites would substantially increase the popularity of Namecoin; as old domains are seized, a torrent user only need to type '.bit' in his/her browser and the webpage then would work. Luckily, it seems this is in the works on many fronts. If Namecoin never adapts to more user friendliness, competitor DNS protocols like the Ethereum based ENS will surely capture the market instead. Both DNS protocols could exist together due to different underlying risk/centralization characteristics, but there are competition

On the official subreddit, there is some activity going on, and not mainly price related. Quite a few developer updates are continuously being posted and has been for years. The general sentiment on the subreddit seems rather to be focused around technical development of Namecoin. The lead developer biolizard89 even suggested a full trading-talk ban.

Looking at on-chain activity, it is evident that not much is going on on the chain right now. BD Ratings expect this to pick up should user-friendly browser plugins to view .bit pages be released.

All in all, the idea of a blockchain solution to create a decentralized DNS seems like a really good fit; recently projects have tried to apply 'blockchain technology' to solve all kind of problems, and that is just stupid. Decentralization is a necessary evil when confronted by over-reaching authorities. China and others already use such power do crush dissent, and so Namecoin has a real utility.

Grade: 3

Reasons: Low on-chain activity mainly due to domain registering and browsing difficulties.

Technology

Namecoin has throughout the years kept up with the Bitcoin code base, meaning most strengths and weaknesses are inherited. The dark side of this adoptive development process was evident when the already mentioned Bitcoin Core bug was disclosed recently. However, the merging of Bitcoin code is most likely very beneficial as the Namecoin codebase then strengthens with the indirect help of dozens of good Bitcoin developers. The same can be said about the implemented merged mining which provides the Namecoin network with an exceptionally high hashrate from Bitcoin mining pools. For the future, Namecoin is expected to adopt SegWit and so pave way for a Lightning Network. Considering that Namecoin's launch was such a long time ago the network can be considered battle tested, and will continue to be so when adopting Bitcoin technology.

On the whole, the Namecoin codebase is very probably lean and efficient as the protocol tries to do not everything, but more or less just what Bitcoin does plus the .bit functionality. The blockchain size is thus kept relatively small so that anyone can run a full node, and the attack surface of the project is reduced due to the limited core functionality. Despite this protocol minimization, a bug that caused mining pool outages occurred, resulting in very slow block confirmations for a short time. The response from the team seems to have been quick and the bug was patched. The communication channels to mining pools were streamlined and some automated monitoring was put in place.

The project is actively developed by a couple of developers. There is of course some merging of Bitcoin code going on, but also development and refinement of Namecoin features. This activity is evident also on the sub-reddit. When inspecting the .org webpage, there are multiple listed team members, many of them programmers.

Grade: 6

Reasons: Mostly up-to-date Bitcoin codebase. Competent but small developer team. Battle-tested over the years.

Decentralization

The number of developers for Namecoin is lower than is optimal, exposing the project for a risk that one or a couple of persons that know the code base quits. BD Ratings deem this risk higher now when cryptocurrency prices are low compared to historical highs. Namecoin has however had much more severe dry patches in its long history, and it always survived.

Since the blockchain runs on PoW and not PoS, the NMC concentration is not very important. Instead what is important is the diversification of hash power. As most of the hash rate origins from Bitcoin mining pools, Namecoin would only be much more vulnerable than Bitcoin should many large Bitcoin mining pools fail to merge mine. Such an event could lead to one mining pool obtaining >51% of all hash rate on Namecoin, and can be mitigated primarily by keeping Namecoin clients functional enough for mining pools to continue using them to earn extra revenue. Historically, the ratio of NMC/BTC hash rate has dropped as low as 50% but today it seems the ratio is closer to 80%. Even if one pool was to have >50% of the total hash rate, the negative effects a double spend would have on its Bitcoin mining would probably result in a net loss as users of that pool observes what happens to NMC and decides to switch to another pool.

On a final note on the Decentralization rating, it should be added that the Namecoin developers on multiple occasions have emphasized the importance of decentralization. The fact that the main purpose of Namecoin is to battle authorities in the DNS sphere ought to have some influence. Just looking at the Namecoin inception, where there were no funds allocated to the first developers, speaks of the culture of this blockchain.

Grade: 5

Reasons: No mining pool is too large. No premine, ICO or crowdsale that create an 'official' hierarchy.

Valuation

Just counting the circulating supply due to the relatively low inflation, Namecoin is at time of writing worth just under USD 9M. This is ridiculously low considering the fundamentals of the project: strong code base, great use case, a number of developers. The reason BD Ratings can't give a higher Valuation rating is the risk of the project dying if developers quit or another decentralized DNS service becomes the norm.

Grade: 8

Reasons: Good overall fundamentals compared to relatively low market valuation.

Disclaimer: The writer owns Namecoin.