Vitalik’s Harberger Tax Idea for ENS

Vitalik Buterin recently posted an idea about taxing ENS domains based on market value and the highest offer. The question being posed here is “Should the ENS DAO tax ENS Domains”?

Should there be demand-based recurring fees on ENS domains?https://t.co/s22CY0PyYd

— vitalik.eth (@VitalikButerin) September 9, 2022

Vitalik is posing this suggestion of a “percent tax based” (perhaps 3%) on the highest offer that a domain is bid on. The reason given is the fact that ENS hoarding is an increasingly growing problem.

Our Existing ENS Pricing

Ever since the proposal, the ENS community has absolutely made its voice heard in opposition to the tax. The new idea of any tax is very different from the now established norms.

The ENS community likes simplicity, and the relative renewal costs that have been set as the standard pricing for ENS names.

Current ENS Pricing:

• $640/year for three (3) characters
• $160/year for four (4) characters
• $5.00/year for five (5+) characters

This simplicity in pricing is what made people really jump into ENS, even before renewals were more widely accepted.

Most people will absolutely hate having to do the math, and pay additional costs, on domains assets that were never part of the original foundation.

ENS DAO Voting Structure

The Harberger tax proposal is something the ENS DAO is not actively voting on, and is [not yet] a voteable proposal.

If and when this does come to a vote, in order to vote in the ENS DAO, you need to own the actual $ENS token, which is the ERC-20 governance token. Currently, Coinbase has over 250K ENS tokens delegated to them, giving them a lot of the say in the voting process.

Coinbase is one large $ENS delegate holder, but they are not the only voter. It takes 100,000 $ENS tokens to initial the DAO proposal, and 1,000,000 $ENS votes to make a quorum. What matters most is what the holders of $ENS tokens vote, for $ENS Proposals.

This idea of a Harberger tax, or any proposal, is much more reachable than many people realize. It does not matter if the ENS Community at large agrees or disagrees. What matters is the voting power that you possess within the total of ENS DAO holders.

To participate in the voting process, the ENS Community must invest in more $ENS tokens. This will enable them to vote on the Harbinger tax proposal or any other ENS DAO proposals in the future.

As in Web2, so in Web3

It has become abundantly clear that the ENS DAO will be the one of the most important DAOs in all of crypto and Web3. Without the ENS naming protocol, Web3 loses human-readability; just like without DNS domain names in Web1, then the Internet wouldn’t be what it is today.

If advanced technological ideas are not presented in a way that is easy for people to understand, then only those who already have a lot of knowledge will be able to grasp them, and those with less knowledge will be at a disadvantage. The dot com standard made it possible for more people to start using the internet on a mass scale. With Web3, we have voting.

Then as we do vote on more -and-more Web3 proposals, corporate institutions will slowly start buying up $ENS tokens, and may not vote in favor with the larger community, whether users like it or not, which makes it more important to participate. 

Can there be a middle ground between taxation and no taxation? The answer is NO. We either continue with the straight forward registration system that is currently in place, or we implement the tax. The tax is a a completely different promise set than previously released.

The consequence of not paying the Harberger tax, or not having sufficient funds to do so is that you will be forced to give up your domain. By the way, the idea Vitalik is proposing is the tax rate compounds, which means a lot of people won’t be able to pay the tax and they would gain the capital, but they would lose their business or personal domain name.

Who Harberger Tax Benefits?

Who would be in favor of the Harberger tax you may ask? Wealthy institutions or whales whom did not get their ENS domain early, or users and organizations who has to work hard to build name recognition. Imagine having to pay a tax on a high bid of a domain you have no intention of selling. Sounds crazy, doesn’t it? We, as a collective, have a duty to start buying up ENS tokens to vote against or for this proposal. The top guys in our society did not get there by being fair; they got there by being ruthless and crushing the competition.

If @VitalikButerin pays hypothetically 3% Harberger tax (of $3,000), then he can keep his own name? (What about users who don't have $3k to keep their username?) #Web3 #ENS $ENS https://t.co/u6FYagI4CC

— GaryPalmerJr.eth.limo 👁 2223.eth 🌱🐇 (@garypalmerjr) September 5, 2022

Why is Vitalik ranting about an ENS tax at a time when he needs to be focused on the merge which comes up in a few days? [Hopefully it is to bring attention to the importance of $ENS tokens and voting.] He knows that once the merge is successful ENS is going to gain way more mass attention than it already has. He is however going about this in a really adversarial and counter-productive manner.

Why Lose Immutability?

Ethereum 2.0 will place a greater importance on digital identity and tracking transactions with human–readable names. This is due to the fact that, after the merge, it will be more difficult to tell who the bad validators are without using readable names. Additionally, accountability will be key in Ethereum 2.0, and human–readable names will make it easier to hold validators accountable.

The tax proposal could also have to do with “cyber–squatting.” In Web2, if you are squatting on a trademarked domain then it can be confiscated from you and given to the holder of the trademark. However, in Web3, if ENS is the standard, then you cannot confiscate assets from someone‘s wallet no matter what. If a tax were to get implemented and one could not afford it, then they could possibly have to give it up, whether the tax is based on “market value“ or the highest offer. Nevertheless, this doesn‘t favor the trademark holder, and this can actually hurt the trademark holder, depending on who places the higher bid!

Another possible reason for a Harberger tax proposal has to do with the length of registration. If you hold a “clean domain”, but are not using it, then what is the point of having it? In a decentralized system, what someone does with their domain is no one’s business. Critics of the tax argue that it disproportionately affects the poor, who are more likely to own undeveloped land. They also argue that the tax can discourage development, as owners may be reluctant to invest in improvements if they know they will be taxed on the increased value of the property.

In my opinion, to keep the current system must vote on whether or not a domain should be allowed to extend or not. There is a process where domains cannot be extended only if the DAO votes on them. To keep the system of unlimited renewals, then we must vote on that as well. I am not in favor of a Harberger tax. The tax creates more complexity and confusion, and it is not necessary. We can have accountability and transparency without a tax.

Coming Together $ENS

We need to come to a decision about this tax. There is no easy answer. We must be organized and come to a vote that represents the community as a whole. Right many of the biggest holders of the $ENS token are large crypto institutions, whose boasting about being decentralized are spotty at best, most of the power is concentrated with about fifteen delegates.

We cannot be reactive and emotional to Vitalik‘s tax proposal. We must intelligently analyze why this tax is being proposed and how we as a collective will vote on it. Will we be organized and vote in favor of the little guy who wants to get into something amazing, or will we be disorganized and allow these institutions with voting power to destroy our chance at true digital sovereignty? The question is for the community alone to answer.

It‘s vital that we take Vitalik‘s idea about the tax seriously. We cannot just dismiss it out of hand – we need to consider it carefully, even though it may be tempting to do so. Allowing an institution like Coinbase to have the most voting power on something that can really impact all of us is a bad thing. We need to start buying up ENS tokens so that we can have a say in how this issue is decided. If there‘s one thing you should take away from this, it‘s that your opinions don‘t matter, if your don’t have $ENS tokens, when it comes time to use your voting rights. Our collective voting rights in the DAO matter more than our collective opinion on a topic.