EP 48: Building the Infrastructure of Web3.0. Explaining Handshake and $HNS Economics


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TLDR below. This is not financial advice.

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General Conclusion

In the previous newsletter we introduced Web 3.0 and why it is so important. Web 3.0 is the next era of the Internet. It makes cyberspace more democratic, and the data is not used against the users themselves. More specifically, the user determines nearly every activity through administration.

There are many projects now trying to change the mechanism of Web 2.0 companies to become Web 3.0 Protocols, which is good news. Examples are:

  • Filecoin, Sia, and Arweave (Data Storage and Web Hosting);

  • Ocean, Erasure, and Streamr (Data Processing and Information Markets);

  • Handshake, ENS, Unstoppable Domains (Domain Name System - DNS);

  • Audius, Mirror, Braintrust (Applications).

Today, we will go deeper about an application that relates to Web 3.0 - Handshake. But first, we need to understand what is this DNS that Handshake is talking about?

What Is DNS?

If you go to Instagram or Twitter you can find people's usernames by typing the name into the search box. In the same way, we give names to computers and systems so we can find them. But how do we do that? How does that work?

You see, machines read 0 and 1. But humans read letters and words. So we need a way to turn letters that humans read, into 0 and 1 that machines read. This is done via DNS.

In the computer world, every individual is a server, computer or one of these machines. The computer name is in 1 and 0. DNS gives this 1 and 0 a name. That name is the website link or URL.

This can be .com, .org, .edu.

Why Do We Need To Decentralise DNS?

DNS is already fairly decentralised but there are different types of decentralisation. Handshake is coming at the political decentralisation of the DNS system. DNS is geographically distributed and there are many different ways to access domain names. The entire domain name system is controlled by one entity called ICANN or IANA. Handshake is trying to turn that kind of entity into a protocol.

Introduction To $HNS

Handshake ($HNS) is a decentralised, permissionless naming protocol in which peers authenticate and are responsible for managing the root DNS naming zone to create an alternative to existing naming systems and certification bodies.

Handshake uses the Bitcoin architecture. Instead of running decentralised money as an application, Handshake runs the decentralisation of DNS.

It is an application that decentralises the domain name service. Instead of .com, you can have .lisa or .economicsdesign, for example. This ownership will be distributed because everyone can own it.

Why Is Handshake Valuable?

Handshake is a domain name system that supports Web 3.0. Web 3.0 is about rearranging existing Internet products and services so that they benefit people rather than entities.

The data will still be used to drive decision-making but will not be used against consumers. Data rights will be protected instead of being trampled for profit. Incentive and marketable mechanisms will help ensure that information is reliable and verifiable.

If Web 3.0 is successful, it will positively affect projects solving related issues, including Handshake.


Objective 1: A decentralised domain naming protocol for everyone to access.

Objective 2: Replace the root zone fork and the root servers.

Why Should People Care If The Handshake Protocol Is Decentralised?

One reason why you would want to use Handshake is that you control the domain. It is like your keys and only you can update the records. No one can take it from you or no one can accidentally give your domain to someone else, so there is a ton of security benefits from Handshake.

There are some identity aspects as well, like owning your domain or your name across multiple platforms. You can log in with your Handshake domain into Facebook or Instagram so you have a unified identity across all the different applications you use.

What Else Did You Miss?

  • Market Design

    • Why Is Such A Large Portion Given Out?

    • How Does Handshake Work?

  • Supply And Demand Of $HNS

    • How Does The Protocol Increase Supply?

    • How Is Supply Reduced?

  • How is DNS Priced? Vickrey Auction

    • What Is A Vickrey Auction?

    • How Does The Auction Work?

    • What Happens When You Win/Lose?

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Currently, Handshake is the first project to have its own crypto on the Domain Name System. And the development potential is huge if the project is on the right track and has the support of users of Web 3.0.

The operating mechanism is similar to Bitcoin Blockchain, with several improvements in functions to optimise and match the protocol's goal.

The cryptocurrency is designed to use the protocol's services, which will then be burned to increase the value of $HNS, which is the buy demand. Regarding sell demand, miners maintaining the network will get $HNS as rewards, they can sell them in the marketplace to continue maintaining the network. According to the distribution of $HNS, the inflation rate is relatively low at 7.7% (excluding burn). If demand grows for the protocol, $HNS will be of enormous value.

Ps: Order the textbook "Economics and Math of Token Engineering and DeFi" today!