How the Internet Works Today

🌐 The Domain Name System (DNS)

The Domain Name System (DNS) serves as the Internet's foundational directory service, translating human-readable domain names like "example.com" into the numerical IP addresses that computers use to locate and communicate with each other. When a user enters a domain into their browser, DNS servers initiate a hierarchical query process that resolves the domain name to its corresponding IP address within milliseconds.

This resolution process involves multiple coordinated layers:

1. Root Servers: The authoritative starting point for DNS queries, directing requests to appropriate TLD servers.

2. TLD Servers: Servers responsible for top-level domains (.com, .org, .ai, .xyz) that point queries to specific registrar nameservers.

3. Authoritative Nameservers: Typically maintained by registrars, these servers hold the actual DNS records mapping domains to their destinations.

Domain Ecosystem

ICANN (Internet Corporation for Assigned Names and Numbers)

ICANN serves as the central coordinating body for the internet's naming system. It oversees the allocation of IP addresses, manages top-level domains, accredits registrars, and contracts with registries. ICANN itself does not sell domains directly but establishes the policies and standards that ensure the stability, security, and global interoperability of the DNS.

Registries

Registries manage the technical infrastructure for specific Top-Level Domains (TLDs). For example, Verisign operates the registry for .com and .net domains. Key responsibilities include:

• Maintaining the master database of all registrations within their TLD

• Operating at the wholesale level

• Required to treat all accredited registrars equally (preventing monopolistic practices)

• Ensuring policy consistency across all registrars

Registrars

Registrars are the customer-facing entities that sell domains directly to end users. Companies like Interstellar, Namecheap, InterNetX, NicNames, and thousands of others worldwide must obtain ICANN accreditation to operate. This separation of responsibilities ensures that end users can freely transfer between registrars without losing domain ownership, fostering competition and innovation.

By taking on the responsibility for maintaining solid and reliable internet infrastructure at the registry level, this division of labor effectively frees up Registrars to concentrate their efforts and resources on distribution, marketing, and customer service. Additionally, this structural arrangement serves as an important safeguard that prevents Registries from engaging in monopolistic practices or exerting undue control over the market, as they are required to treat all accredited registrars equally and fairly.

Domain Structure

Every domain name consists of distinct components:

TLD (Top-Level Domain)	The extension (.com, .ai, .xyz) — managed by registries
SLD (Second-Level Domain)	The main identifier (e.g., "doma" in doma.xyz) — owned by the end user
Subdomains	Optional prefixes (e.g., "docs" in docs.doma.xyz) — controlled by the end user

Limitations of the Current System

Despite its robust architecture, the traditional domain ecosystem faces significant challenges:

• Illiquidity: The secondary domain market remains highly fragmented. In 2024, only ~$185 million in domain resales were recorded across 144,700 transactions. High-value domains require weeks-long escrow processes and broker intermediaries.

• High Barriers to Entry: ICANN accreditation requires significant capital, technical infrastructure, and compliance overhead—preventing new market participants from facilitating domain transactions.

• Lack of Programmability: Domains exist as static assets without standardized developer interfaces. There's no way to standard way to programmatically interact with domain capabilities across registrars, requiring costly individual one-off integrations.

• Opaque Pricing: Valuations are determined through private negotiations rather than transparent market mechanisms.

• Lack of Standardization: Each registrar has their own sandbox and proprietary APIs/standards. This means even standard mechanisms like transfers are completely custom and depend on registrar implementation