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Blockchain-Based Names: New Frontier for Brands (and Squatters)

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Sterne, Kessler, Goldstein & Fox P.L.L.C

Blockchain technology has garnered attention from various sectors over the past ten years, much of it due to the rise of Bitcoin and other cryptocurrencies. Cryptocurrencies have gained popularity and notoriety for their technical aspects that make transactions generally reliable, immutable, and anonymous. With decentralized control, cryptocurrencies prevent forgery and double-spending that traditional financial institutions typically need a lot of time and trust to clear, especially between banks and across borders.  In this way, cryptocurrencies can streamline financial transactions that were previously cumbersome, if not also risky.

Blockchain technology has also revolutionized other aspects of business.  For example, blockchain can be used to validate the authenticity of products such as art, rare goods, and sensitive commodities, and is viewed as a way to address counterfeiting via global supply chain verification. Blockchain is also hitting the mainstream, with companies such as Amazon, Facebook, and IBM racing to dominate the blockchain application space.

Blockchain technology at its core is based on distributed-ledger technology. Some blockchains can also implement decentralized applications (dApps) to impose and enforce conditions on transactions. Similarly, some blockchains may implement non-fungible tokens (NFTs). An upshot of these blockchain developments has been for groups of users of various blockchains to implement naming schemes, including via dApps, on various blockchains. Naming helps users to abstract away complexity of cryptographic keys (e.g., d3ddccdd3b25a8a7423b5bee360a42146eb4baf3), which may be long and difficult to remember or type. Naming services were developed for Internet domains and hosts, via the Domain Name System (DNS). Because of DNS, users can type google.com into web browsers instead of having to remember and type 2607:f8b0:4006:0812::200e or 172.217.7.174.

Even through some blockchain-based names may resemble Internet domain names, the standard DNS was not designed to resolve blockchain-based names or use dApps directly. Instead, new Internet domains are being configured as bridges to blockchain-based names from DNS. Decentralized applications are now lowering barriers to entry for many users who wish to register names on various blockchain platforms. Examples of such dApps include so-called “smart contracts” on the Ethereum blockchain. Other blockchains with a focus on name services that have emerged include Emercoin, Handshake, Blockstack, EOSIO, and IOV BNS. Some implementations may treat names as NFTs.

Not unexpectedly, these blockchain-based name services have become a new frontier for brand owners. However, the decentralized nature of such services makes them attractive to a new breed of squatters and land grabbers—not least because they can be nearly impossible to police for infringement of trademark rights. Moreover, unlike traditional domain names, which are subject to ICANN and its dispute-resolution policies, blockchain-based naming systems often have no central authority that can provide a remedy to aggrieved brand owners, and the anonymity that blockchains provide typically means that squatters cannot be identified in order to take legal action in any forum.

Squatting has been, and remains, a problem with typical blockchain-based name systems. Nevertheless, technologies and policies continue to evolve, and solutions may be emerging. For example, the Ethereum Name Service (ENS) rolled out a new registrar in May 2019. This update introduces further mitigations against squatting, including strengthening its previous policies to discourage squatting. Further adjustments may be likely in the future of ENS, depending on how successful the latest measures prove to be.

While ENS addresses lessons learned from after more than two years in use, other new services continue to spring up. For example, Ziliqa and EnCirca “.crypto” may implement new name services that include trademark validation similar to that of the Trademark Clearinghouse for generic top-level domains (gTLDs).

For brand owners, these new blockchain-based name services present both opportunity and risk.  For now, treating these new unregulated spaces as free markets that need to be monitored for opportunities and addressed proactively may be the safest path forward into the cryptographic wilderness.

This article appeared in the June 2019 issue of MarkIt to Market®. To view our past issues, as well as other firm newsletters, please click here.