On Domain Name Squatters

Domain name squatting has become an overriding point when discussing Namecoin.  After a tumultuous early life, many important domains (including namecoin.bit) were lost to squatters.  How to combat such pollution has been hotly debated.  However, I would like to outline the simple mechanics underlying all solutions to domain name squatting.

Defining Value & Harm

Even with Namecoin’s unique architecture, the basic value proposition of a domain name and the harmful effects of squatters remain the same.  The value of a domains lies in the mapping of human-memorable names1 to pieces of information.  Any appreciation in value is directly attributable to increases in their memorability.

Sometimes a valuation increase reflects the effort a website owner has put into making the domain popular.  At other times that increase is totally unrelated to the domain owner; such as when a large company wants to name a new product whose domain happens to be used for a personal blog.  Domain-name squatters, however, conflate the appreciation of the value of a domain with the value of their initial effort. The logic goes something like this:

  1. Buy a domain for a low cost.
  2. Do nothing.
  3. Profit!

A squatter would point out that the valuation of the hypothetical blog being bought out by a large company had little or nothing to do with the original blogger’s work, and they would be correct.  However, at least the blogger was doing something with the domain while they owned it.  Snapping up a human-memorable names for non-use makes the system as a whole less useful and thus less valuable.

Note that this is not an anti-capitalist screed: I am all for profit but I am against profiteers and domain squatting is a purely an act of profiteering. Any money a business spends on purchasing a domain from a domain squatter in no way goes towards improving the domain name system, the network, nor the company itself.  Had the privateer not existed, the company could have spent that money on paying an engineer to perform value added work.  Even if that money simply went to shareholders it would be supporting continued investment in activities which add value.

Indeed, it would be better if the money had been destroyed because at least then it would deprive the domain name squatter of funds to perpetuate skimming off of the profits made by those whom add value to the system2.

Fighting Back

Unfortunately, when there is room for arbitrage in a market it will occur. For too long economists have assumed that markets make the best decisions and tend to throw their hands up when someone points out a harmful effect of the market. Well, economists certainly never read up on the halting problem because (as anyone with a computer science background knows) processing in and of itself is not magical.   Thus architects of a domain name system are obligated to try and maximize the productive activity on the domain and minimize the harm caused the scum of the internet.  We do that by trying to bring the operating costs for domain name squatters inline with the value of the domain itself.

An Example

Let’s examine domain tasting. Domain name tasting is the exploitation of the 5-day grace period on domain purchases.  After purchasing a domain, the purchaser has 5 days to get a refund.  Squatters use these 5 days to test the incidental traffic rate. If X number of people accidentally land on aapple.com and some percentage of those click on advertisements then squatter just multiplies that by 72 to determine if the ad revenues will offset the yearly renewal fee.

This appears harmless enough but it costs the registrars and the legitimate website owners money and it degrades the utility of the web for end users. It took a decade and a class-action lawsuit to force ICANN and Verisign to introduce a $7 non-refundable fee which lowered monthly .org returns from 17 million to 60,000: 99.7% of the returns were illegitimate.

Counter Measures

Namecoin does not have this particular issue yet the basic strategy for fighting squatters remains the same: increase their operating cost.

Renewal Fees

Everyone generally agrees we need to introduce renewal fees and increase the initial value of the domain.  The biggest stumbling block here is the every fluctuating value of a Namecoin.  Jeremy_Rand and others have advocated for the system to find a way to auto-balance the cost of domains, much like it auto-calibrates mining difficulty. I think that introducing external data feeds into such a calculation, like a running average of NMC/dollar, is an idea worth exploring.  Many feel as if that would give control over to outsiders whom could tamper with the feed but I think we would react pretty swiftly to any such tampering.  Furthermore, with currencies like Ripple enabling decentralized trading I’m hopeful we can find a signal that would enable these capabilities.

Domain Length

Namecoin could also introduce pricing without regard to the network or outside information. One way to do this would be to price domains in relation to their length. There are plenty of ad-hoc stats on the length of domains and other factors which SEO people agonize over, however, they all roughly map to basic cognitive limits. The size of the 3 character namespace3 is tiny compared to domains with 8 characters.  It would be easy to calculate some percentage decrease/increase for each character.  Other ideas include dictionary look ups, checking for ICANN domains, or discounting domains which use dashes or numbers. Whatever the system, we should attempt to keep the rules simple enough for people to understand and keep pricing relatively consistent year-over-year. However, we could also just leave it up to the registrars to simplify things for the end user.

Keeping Registrars Honest

Of course, domain name registrars have insider information and a monetary incentive to abuse this information. For example, Network Solutions was caught registering domains their users had searched for. Registrars also have various ways of collecting data on how much traffic a domain name receives and can choose to purchase the domain name if it expires.

Given that anyone can setup registration services, we have very little control over what they can do. However, we should have an official shit-list of companies known to participate in shady practices, including domain name auctions.  In the future we could offer some sort of certification, which would require a membership fee that would go towards paying for research on detecting such activity. We should certainly refuse any donations from registrars which engage in these practices and remove them from materials under our control.

Preventing Brokers

Sedo has emerged as the largest domain-name auction house, taking a hefty cut of domains that are sold. I think this demonstrates the need for a built-in protocol for domain name auctions. At first blush a built-in auction system would appear to make squatting easier.  However it prevents the formation of organized outfits like Sedo. We should also experiment with the auction fees, with the aim to be as high as possible before outfits like Sedo would make more money by acting as an auction house. In this way the network recovers at least a cut of such activity, we deprive individual squatters of financial benefits, and it prevents auction houses from gaining any political or economic power.

Domain Catch

We can also attempt to out-gun the squatters by creating a catch-service for known desirable names. We can buy up domains nearing their expiration and sell them at cost4 to the rightful owners. We ourselves have lost Namecoin.bit, and there is little hope of ever getting it back5. If we can effectively leverage our expertise and community good-will, we may be able to stymie the arms race we have seen on the ICANN root.


There are many, many details of the proposals listed here to be argued over. I am sure some of them are naive and doomed to failure. However, the overall thesis I wish to communicate is that even if we cannot exterminate leeches that doesn’t mean we cannot reduce the harm they cause.  Most of the meaning in domains comes from human activities indicating that a domain is important, there is a reason why Google hasn’t snatched up gmail.yt. We do not have to eliminate squatters to make Namecoin useful, our goal must be to keep them sickly and weak so as to increase the value of the rest of the system.


Most, if not all, of the ideas in this paper came from long talks on IRC, the forum, and my prior research. I would like to give credit to Khal, Jeremy_Rand, Virtual Master, Sugarpuff, Ben`, domob, Ademan, Lakoff, Slashdot and the many people I have forgotten.  Please forgive and suggest changes to any abrupt changes in tense or simply ending of a sentence, I have a “learning” disability which makes it difficult to catch such errors.

  1. Human meaningful names in Zooko’s original formulation 

  2. This is no different than high-frequency-traders claiming to provide “liquidity” to the financial system by skimming 5% off of retirement accounts.  It is utter bullshit all around. 

  3. However, I think all sub 4 character domains should be reserved for second level domains but …. 

  4. Cost of the domain + operating expenses. 

  5. Of course, figuring out the “rightful owners” is more easily said than done.  ICANN actively engages in trademark disputes but it’s likely that any non-anonymous individual who owns a domain that uses a registered trademark be forced to turn it over. 

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