Why Are NFTs Bad for the Environment?

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Non-fungible tokens (NFTs) have taken the digital world by storm. From art to music to videos, all kinds of digital content are being minted into NFTs and sold for astronomical prices. But behind the hype around these unique digital assets lies a dark reality – NFTs are terrible for the environment.

What Are NFTs and How Do They Work?

Before we dive into the environmental impact, let’s first understand what exactly NFTs are and how they work.

What is an NFT?

An NFT or non-fungible token is a unique digital asset that represents ownership of something on the blockchain. NFTs can represent digital art, music, videos, or any other digital content.

Core Properties of NFTs

NFTs have some core properties that make them different from cryptocurrencies like Bitcoin:

  • Non-fungible: Each NFT is unique and not interchangeable.
  • Indivisible: An NFT cannot be divided into smaller parts.
  • Verifiable scarcity: Due to their digital records on blockchains, NFTs can be verified as scarce or limited edition.

How NFTs Work

NFTs exist on a blockchain ledger. Most NFTs are built on top of the Ethereum blockchain.

  • Each NFT has a unique identifier code and metadata that distinguishes it from other NFTs.
  • The ownership of an NFT is recorded on the blockchain when it is minted or created.
  • When someone purchases an NFT, the record is updated to reflect the new owner.
  • The transaction history is permanently recorded on the blockchain, allowing the NFT’s authenticity to be publicly verified.

So in summary, NFTs are unique digital assets with ownership records stored on a blockchain. The owner has the proof that the NFT is one-of-a-kind and solely theirs.

Why Are NFTs Considered Bad for the Environment?

Now that we understand what NFTs are, let’s examine why they are getting so much criticism for their environmental impact. There are a few key reasons why NFTs can be highly energy-intensive and environmentally taxing.

Energy-Intensive Blockchain Transactions

Most NFTs are created on the Ethereum blockchain, which relies on a mechanism called “proof-of-work” to verify transactions. This process requires an immense amount of computing power and energy:

  • Computers must solve complex cryptographic puzzles to validate each block of transactions.
  • As the network grows, the puzzles get more difficult, requiring more computing power.
  • It’s estimated that an average NFT transaction on the Ethereum blockchain has a carbon footprint of around 100 kgCO2, equivalent to driving 250 km in a typical petrol car.

High Energy Costs of NFT Minting

The process of creating or minting an NFT also consumes a lot of electricity:

  • Minting an NFT involves executing complex smart contracts that permanently store the NFT’s data on the blockchain.
  • The average energy consumption for minting an NFT on Ethereum is around 80kWh, enough to power an EU resident’s electricity use for 2 days.

According to a recent study, creating an average CryptoArt NFT has a stunning environmental footprint of over 200 kgCO2, equivalent to driving 500 km in a standard car.

Ongoing Energy Consumption After Minting

The energy consumption of NFTs doesn’t stop after minting. As long as the NFT exists on the blockchain, it continues to have an environmental impact:

  • Storing data permanently on the blockchain requires ongoing energy consumption.
  • Further transactions like bidding, trading, or transferring NFTs use more energy.
  • The PoW consensus keeps getting more resource-intensive over time.

So the energy consumption and carbon footprint of an NFT accumulates as long as it is in circulation.

The Alarming Carbon Footprint of NFTs

The environmental impact of NFTs stems primarily from the high carbon emissions associated with their energy consumption. Some statistics to put this into perspective:

  • The average NFT transaction emits carbon roughly equivalent to the amount the average EU resident produces in a month of electricity use.
  • A single Ethereum transaction emits carbon equivalent to over 500,000 VISA transactions or 51,210 hours of watching YouTube.
  • The entire NFT market in 2021 emitted carbon emissions equal to the lifetime emissions of 12 cars.

A report by the organization Cryptoart.WTF analyzed the emissions of over 110,000 CryptoArt NFTs sold in 2021. Here are some of their key findings on the carbon footprint of popular NFT platforms:

  • An average CryptoPunk NFT has a lifetime carbon footprint of over 4 tonnes CO2e.
  • A Bored Ape Yacht Club NFT has over 5.5 tonnes CO2e.
  • Popular CryptoArt NFTs like Autoglyphs, Art Blocks and Phanta Bears range from 2-9 tonnes CO2e per NFT.

These figures indicate an alarming carbon footprint stemming from the supposedly “digital” world of NFTs.

The Impact of Non-Renewable Energy Usage

A significant reason for the massive carbon emissions is that non-renewable energy sources like coal are often used for mining cryptocurrencies and generating NFTs.

  • In 2020, studies estimated 39% of global crypto mining was powered by coal.
  • China accounted for over 75% of Bitcoin mining, mostly using coal plants in Xinjiang, Inner Mongolia, and Yunnan.
  • This results in sizable carbon emissions per NFT created or mined using non-renewable energy.

Even in regions with cleaner energy mixes, the increase in electricity demand from crypto mining can push the usage of coal and other carbon-intensive sources to meet the extra load on grids.

How the Ethereum Merge Could Make NFTs Greener

In light of the intense criticism over energy usage, the Ethereum blockchain is transitioning to a new consensus mechanism called “proof-of-stake” that will significantly reduce emissions caused by Ethereum based NFTs.

Here’s a quick primer on the upcoming Ethereum merge and its potential impact:

What is the Ethereum Merge?

The merge is a long-planned upgrade to Ethereum infrastructure, merging the existing execution layer of Ethereum with its new proof-of-stake consensus layer called the Beacon chain.

How Proof-of-Stake (PoS) Differs from Proof-of-Work

  • Instead of mining, PoS validates transactions based on users staking ETH coins to verify blocks. The more ETH staked, the more chance of being selected to validate.
  • Energy usage could reduce by ~99.95% as the computationally-heavy cryptographic puzzles of PoW become obsolete.

Potential Benefits of the Merge

Experts estimate the transition to PoS will:

  • Reduce Ethereum’s energy consumption by 99.5%.
  • Slash carbon emissions from transactions on Ethereum by 99.99%.
  • Make Ethereum 99.99% more energy efficient.
  • Stop the exponential growth in energy usage as Ethereum scales.

This is welcome news for improving the sustainability of popular NFT platforms like OpenSea that are built on Ethereum. However, it’s important to note that the Merge does not reduce historical carbon emissions caused by Ethereum and existing NFTs already minted.

Ongoing Efforts to Make NFTs Greener

Beyond the Ethereum Merge, there are several initiatives aimed at reducing the ecological impact of NFTs:

Using Carbon Offsets

Some NFT creators are purchasing carbon offsets to compensate for emissions generated during minting. Offset programs fund activities like tree planting to balance out carbon emissions.

However, offsets don’t eliminate the source of pollution so their efficacy is debated.

Transitioning to Low-Energy Blockchains

Ethereum alternatives like Tezos, Cardano and Solana use PoS or other mechanisms promising energy efficiency. Flow blockchain uses resource-efficient “Proof of History”.

But Ethereum still dominates NFTs currently, so scaling greener blockchains is an ongoing effort.

Using Renewable Energy

Crypto mining operations are looking to renewable energy sources like solar, wind, and hydropower to reduce reliance on coal.

In Texas, some miners are partnering directly with solar/wind farms to source renewable energy. But the renewable supply still falls short of actual demand.

Carbon Accounting & Disclosure

Some NFT platforms like Offsetra are providing carbon emissions data to raise awareness.

Disclosure helps buyers make informed decisions and pushes creators to use greener blockchains and minting processes.

Innovation in Consensus Protocols

Progress is being made on novel consensus models like “proof-of-personhood” that consume negligible energy compared to PoW.

Key Takeaways on NFTs and the Environment

To summarize, here are the key points on the environmental impact of NFTs:

  • NFTs have a high carbon footprint due to the energy-intensive nature of blockchains like Ethereum.
  • Popular CryptoArt NFTs can have lifetime emissions from 2 to 9+ tonnes CO2e.
  • The average NFT transaction emits 100 kgCO2, equal to driving 250 km in a petrol car.
  • Non-renewable energy usage exacerbates emissions from crypto mining and NFT minting.
  • The Ethereum Merge to proof-of-stake promises to slash emissions by 99.99% by reducing energy consumption.
  • But it doesn’t eliminate historical emissions, so other solutions are still required.
  • Renewable energy usage, greener blockchains, carbon offsets, and transparency around emissions data are important steps that are being taken.

In conclusion, NFTs undoubtedly have a sizable environmental impact, especially NFT art and collectibles with their hunger for computing power. As the nascent NFT industry grows, it critically needs to prioritize designing and adopting more sustainable technical architecture. With conscientious efforts, NFTs can move towards an eco-friendly future aligned with the zero-carbon imperative of our times.

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