I am propose to use a TLD .bit for bitdns

3 letters is better than 6

microsoft.bit
linux.bit
facebook.bit

In my proposal: http://domainchain.org/wiki/doku.php?id=bitname

The proposal that I have made has covered 3 main areas.

First: Changes to the Bitcoin Protocol.

Expanded templates, (allowing to check transactions based upon what they claim to be).  This also allows new services to be run within the chain without changing the protocol.  Using a strong scripting language it should be possible to make 'plugins' for generators so that they may accept new types of bitcoin transactions.

Transaction Grouping, this allows transactions to be grouped together by template.  Clients will only need to download the summary and the hash tree, unless they want more detail.

Burning transactions.  This is a new sort of transaction fee that 'burns' over time.  It contains two qualities, firstly total number of coins to be to be burnt, and secondly, the rate (per block) that it is burnt at.  This is the basis of the compensation to generators for including extra data in the block chain.   When the transaction stops burning, the extra data may be deleted.

Second: BitName

BitName is a named address that has a fingerprint of a public certificate.  Instead of sending bitcoins to 13TSBH4wdchsMqFTwqyLjvPES99sZ96MaP, one could send bitcoins to 'da2ce7'.  The BitName concept is built upon burning transactions.  Each transaction that declares a name, must include a burning transaction to keep the name active.  The higher the rate of burning the more likely that the transaction will be accepted.  If the rate is too low, the network will likely ignore or forget the name early.

If a generator accepts a new transaction of the same name as a pre-existing, the network will likely orphan the block, unless the burning fee is so low that the network regards the name as spam.

The other significant benefit from having a BitName is public certificate verification, when one sends a message that is signed, the key signing the message can be check against the known name of the source.  The fingerprint included in the block chain then can be used to verify the signer.

Third: BitDNS

BitDNS is derived from BitName.  A BitName should be used to make any new BitDNS records.  This requirement in the future can be used for spam prevention.

Both the top-level root domains and the 2nd level domains need to be globally unique.  Root BitDNS records are expensive and both the initial fee and the burning  fees are network enforced.  The main purpose of the root domains is top provide a service to the 2nd level domains.  To be accepted by a top-level domain, the fees defined by the top-level domain must be paid to its address.  This is enforced.

2nd level domains behave much like BitNames, with two main difference: first, to be used the domain must pay registration fees to at-least one top-level domain.  Secondly, IP addresses can be binded to these domains.

Since the domains all have fingerprints of their TLS certificates, when one connects to a server defined by a BitDNS record and the server replys with a secure connection, the client can check if the secure connection is valid, not by using a CA, but rather cross-referencing it with the fingerprint included in the block chain.  Man-In-The-Middle attacks are very, very, very difficult under this system.

I'm still working on the sub-domain structure.

Yes, any strong scripting language language will do.  I'll leave it up to the programmers to pick the language. 

"To implement this simply requires adding one new field to each transaction, the 'name' (or hash) of the 'stock' being transferred."

In the case of DNS this still leaves the problem of discovering where in the world are your DNS records hosted. I think you need one more piece of data, the IP addresses of your authoritative DNS name servers.

I'm unclear on who gets to register new names in your scheme, how much they have to pay, and who receives thevpayment. Also, are name registrations permanent and forever?

How long this debate had been going on? I am still unclear on whether or not you guys agree on anything.

The longer we wait, the less chance of success we will have.

There is some compoetition in the form of dot p2p project.

This system can be used not only for DNS, it can hand out nicknames in various decentralized networks.

For example, sooner or later, the phone numbers will be replaced with names that the user can create their own.

Currency should stay currency, domains should stay domains. This should be separate things.
It is stupid to push something like this on the main client blockchain.

Burning transactions sound like a useful mechanism, apart from the fact that they would require changes to Bitcoin. I keep wondering whether there is a way to take the burning mechanism outside of Bitcoin itself, I can't think of a good way to do so.

I also wonder whether it would be a good thing to turn all Bitcoin transaction fees into burning ones, to spread the benefit of processing a transaction beyond the immediate generator.

PS: I don't understand the bit about doing away with Certificate Authorities for secure internet connections, but if this is possible it would be a very popular fringe benefit.