The discourse around NFTs and their impact on climate change has taken a severe turn in recent times. As their valuation and significance seem to be increasing, so does their contribution to the carbon footprint. But what is NFTs? What is their significance and impact in the current scenario?
If you’ve heard of cryptocurrency and know it, you should understand what an NFT is. NFTs are digital assets similar to crypto, and they use the same programming as Bitcoin and other kinds of crypto. However, the most significant distinction between crypto and NFTs is that NFTs are “Non-Fungible,” whereas Bitcoin and other crypto are fungible.
Fungibility means that every piece of one form of cryptocurrency is equivalent to another. Because of the same value, cryptocurrencies are readily and effortlessly tradable for one another. One Bitcoin equals the same as another and is also exchangeable for another. A single NFT isn’t exchangeable for another. They are “Non-Fungible” because they are one-of-a-kind and have unequal value.
What is a Non-Fungible Token (NFT)?
A Non-Fungible Token (NFT) is authentication of possession of any piece of digital artwork. It was invented and launched in 2015 as a mode where digital artists could affirm the originality of their work. However, it is as significant as a welcome change in a medium where replicates of every variety of art quickly emerge. Now, these NFTs can be used to signify any piece of art that is easily reproducible, such as photos, videos, audio, and other types of digital files, as unique items.
The majority of NFTs are digital collectables and come with cryptocurrencies. They include works of art, music, videos, and other digital media. If they aren’t a one-of-a-kind thing, they are a part of a minimal number of digital items. You are the single owner of a digital asset when you own the right to an NFT. It is also what distinguishes NFTs from other digital works.
There is nearly a limitless supply of that art or music piece with other pieces of digital art that aren’t NFTs. Other forms of digital art do not use the programming that distinguishes an NFT. Other types of digital art are easily treatable and replicable.
Artist and NFTs
When an artist mints NFT of their work, it becomes a unique and non-interchangeable unit of data entry into a digital ledger called a ‘blockchain’. Thus, it can facilitate the artists to use blockchain technology to establish a verified and open proof of ownership of their artwork. In addition, however, one can create copies of the original file and share with multiple people as a copied file isn’t restricted to the owner.
Non-Fungible Tokens (NFTs) are usually minted on the cryptocurrency Ether, which has become a part of the Ethereum blockchain. The Ethereum blockchain gradually rose in popularity, and thus their interest grew with the rise of interest in cryptocurrencies. This blockchain entry is specifically unique to the minted work. As such, when someone purchases it from the artist, it acts as proof of your ownership.
NFTs also make it possible for the artists to get a percentage of the profit each time it is bought or sold. With every transaction, evidence adds to the blockchain. When you sell an NFT, you are paid in Ethereum cryptocurrency, which you can cash out based on fluctuating rates of exchange, just like converting between country currencies. Although NFTs work similarly to cryptographic tokens, unlike cryptocurrencies like Bitcoin, NFTs are not mutually interchangeable and hence not fungible.
The space of digital token uses as much electricity as the entire country of Libya. With NFTs, their rising demand and increasing transactions would further indicate profit-making opportunities for miners, leading to increased emissions.
A carbon footprint is an approximation of all the carbon emissions released in the atmosphere in the process of creating and consuming a product. There are numerous factors and contributors to carbon emissions, from renewable or fossil fuel electricity to manufacturing a carton of milk. Therefore, as responsible citizens of the world, people now agree that individual accountability in carbon emissions is essential.
However, since calculating the exact sizes of these numbers are challenging, they usually carry an estimate. Nevertheless, they are still enough to calculate the environmental impact of NFTs. According to the Digiconomist website, a single Ethereum transaction consumes more than 70.32 kWh, enough to power 1 US household for two and a half days. It also estimated that a single Ethereum transaction’s carbon footprint at 33.4kg CO2. According to another concerned artist, an average transaction precisely for NFTs has a carbon footprint of about 48kg CO2. However, this is also not the final amount, as each time an NFT is minted or sold, that becomes another transaction with added CO2 emissions.
Carbon Emmisions and NFT
If such estimates continue to rise and need calculation, one NFT transaction will likely leave a carbon footprint of more than 14 times that of mailing an art print, estimated at 2.3kg CO2. Thus, Ethereum ends up consuming more energy than any other mode of authenticating and selling original artwork. Its annual consumption of energy is even said to be more than that of Denmark’s annual consumption.
Now, with its increased popularity, the increase in NFT users and transactions has worsened the problem. In addition, one can secure cryptocurrencies like Bitcoin and Ethereum by a mechanism called Proof of Work (PoW), an energy-intensive mining process. It automatically implies that these blockchains are energy-intensive by design itself.
Additionally, buyers have a higher incentive to participate in computations with the rise in cryptocurrency prices. It then involves additional nodes and stakeholders, complicating the process and requiring more energy. It becomes an alarming situation considering the warnings issued already by environmentalists and climate experts. The unprecedented rise in temperature, sea level, species extinction, severe weather events and other hallmarks of global warming also increases the risks involved in this form of data entry and wealth generations techniques.
Since November 2017, NFTs have amassed approximately 174 million USD. Because of their uniqueness and potential to be single asset owners, NFTs carry a high value. Beeple (Mike Winklemann), for example, is a digital artist. “Everyday: The First 500 Days,” he titled his work. It’s a compilation of simple sketches he put together to make an NFT that sold for $69,3 million.
Jack Dorsey, the co-founder of Twitter, sold his first tweet for almost 2.9 million dollars. Because it sold as a non-financial transaction (NFT), one person now owns the first tweet of one of the men who founded Twitter. Someone paid $208,000 for a one-of-a-kind digital trading card of a legendary LeBron James slam dunk.
But NFTs are Digital. How is it Bad for the Environment?
NFTs may appear to the inexperienced eye to be a mechanism for creative and hardworking artists to be fairly compensated for their work. It is possible — every time an artist’s work is purchased or sold, the artist earns a percentage of the proceeds. However, NFTs and the energy required to mine and store them hurt the environment.
How? NFTs, on the other hand, make use of Blockchain technology. Unfortunately, this technology consumes a significant amount of energy. Developing an NFT from a real-life piece of art or a digital item requires a lot of energy. And every time the NFT is bought or sold, a greater quantity of electricity is expended to accomplish the transaction. The most common method of selling NFTs is through Ethereum. This system is responsible for keeping NFTs safe. The programming assures that the item cannot be replicated or stolen, but it consumes a large amount of power in the process.
Ethereum relies on a “proof of work” system. This “proof of employment” assures that the sales are legitimate, but will use as much power as Libya. “Blocks” join up to the chain in a method designed to be low-energy. With intention energy shortage, the argument is that fewer people would be prepared to risk a large amount of their power on erroneous transactions. Instead, they must pay their electricity bill. It’s what makes buying and selling NFTs and cryptocurrency so safe, but it’s also why some critics and sceptics are sceptical of digital assets in general. The more popular and valuable NFTs become, the more NFTs become popular and valuable.
Proof of Stake
Some supporters of NFTs who oppose “Proof of Work” systems and their environmental impact have proposed alternative methods of making NFT creations and transactions valid and safe. Another method that would result in lower emissions is “Proof of Stake.”
They must prove they have a “stake” in the transaction rather than proving authenticity by sacrificing a considerable quantity of their power.
It implies they’d “lock-up” a piece of their cryptocurrency or another digital token, which would get lost if the transaction turned out to be fraudulent. Thus, “Proof of Stake” has the power to deter unethical behaviour. Still, it does not result in a considerable amount of power that applies in a single transaction, similar to “Proof of Work.”
Ethereum for NFT
Ethereum is the primary programming language for NFTs. For years, Ethereum has teased that they would eventually transition to a “Proof of Stake” method. The problem with the switch is that everyone interested in NFTs would have to agree on a new system.
Otherwise, the entire system might implode. The entire system develops on valuing the amount of electricity used during a transaction. The core of value and transactions would be altered by “Proof of Stake.” But, to be clear, the amount of energy required to run Ethereum and NFTs is comparable to that required to run a small country. The change in value may put off many users and systems, but given the amount of power required by a “Proof of Work” system, the entire system — and our environment — may collapse regardless.
So why is it that every person is willing to invest in NFT?
Non-fungible tokens, or NFTs, are original, one-of-a-kind digital treasures that have swept the art world recently. They contain a one-of-a-kind string of code kept on a blockchain, and their value changes according to demand.
Others can still look at the work online. Still, buyers want to claim ownership of the original. It was previously impossible with digital art before the invention of NFTs in the mid-2010s.
Artists worldwide were ecstatic: NFTs allow them to earn a large amount of money from their work, reach a global audience, and link a digital file to its author, ensuring authenticity. Moreover, with cryptocurrency’s value increasing, some believe there’s never been a better moment to invest.
NFT and Companies
Powerful computers can try an infinite number of new block creations each second. The first miner to find the answer receives their unique asset, then put it to the blockchain. As the price of bitcoin rises and more computers attempt to solve them, the “puzzles” become more complex to solve. To stay up, it necessitates higher computing power, more giant warehouses, and more powerful cooling systems. Additionally, it requires an increasingly rising carbon impact.
This level of effort is deliberate; it fosters competition and protects against security concerns. However, the emissions produced due to the process contribute to the degradation of the Earth’s atmosphere. Ethereum, which hit an all-time high score recently, can pay for an NFT. One ETH was worth $4,296.63 at the time.
Not only for artists, but the financial benefits of selling an NFT applies to everyone. For $2.9 million, an NFT of Twitter CEO Jack Dorsey’s first tweet sold out. A $208,000 digital trading card of an impressive LeBron James slam sold out. Kings of Leon made history by becoming the first band to release an album exclusively as an NFT. The environmental consequences apply to all PoW-based NFTs, not just CryptoArt.
Crypto Climate Concerns
The increased awareness of NFTs’ environmental impact coincides with mounting proof of crypto technology’s negative consequences. There are predictions that Ethereum will use 44.94 terawatt-hours of electricity per year, similar to the annual power usage of countries such as Qatar and Hungary. As a result, it emits roughly 21.35 metric tonnes of carbon dioxide per year, comparable to Sudan’s carbon footprint.
According to the Cambridge Bitcoin Electricity Consumption Index, the amount of electricity consumed to mine Bitcoin in a year equals that used to power Malaysia, Sweden, or Ukraine. As per a study, if Bitcoin emerged as extensively embraced as previous new technology, it might elevate the Earth’s temperature 2 degrees Celsius above historical levels.
The current price of the cryptocurrency and its hypothetical future value have a role in determining total emissions. Musk recently announced that, due to environmental concerns, Tesla would no longer accept Bitcoin as a form of payment for vehicles. However, when he revealed that the corporation was looking into other cryptocurrencies that utilize less energy per transaction, Bitcoin’s price plummeted.
There are blames on crypto miners for power disruptions in Iran. But, at the same time, recent research indicated that the Bitcoin blockchain’s energy consumption in China alone exceeds the Czech Republic’s and Qatar’s combined annual greenhouse gas emissions.
Attempts to measure the environmental impact of mining and NFTs have generated mixed results. However, experts agree that the blockchain’s overall carbon footprint is massive. Where do they differ? Whether the emissions are traceable back to individual NFTs or the entire blockchain.
Memo Akten, a digital artist, studied 18,000 NFTs and discovered that the typical NFT equals a carbon footprint of more than a month’s worth of electricity use for the average European Union resident. The considerable footprint is partly due to the numerous transactions associated with NFTs, such as minting, bidding, cancellations, sales, and ownership transfers. There are predictions that these emissions will be ten times that of a typical Ethereum transaction.
When Lemercier put six pieces of art on the Nifty Gateway marketplace in November, he was ecstatic to see them sell out in less than 10 seconds. However, when the artist, who had been environmentally conscientious for years, inquired about his CO2 emissions and energy use, he received no response, prompting him to do his investigation.
Seeking A Sustainable Future
Frustrated digital artists are spearheading the charge to make NFTs more sustainable, with plans to reward anyone who can innovate ways to do so. Damien Hurst, an artist, recently released a collection of NFTs on the Palm sidechain. He set forth claims that they are 99% more energy-efficient than PoW systems. One of the most severe challenges is PoW chains. Many artists are also attempting to raise awareness about Ethereum alternatives.
Ethereum declared some years ago that it would abandon the PoW approach. It would favour a “proof of stake” (PoS) mechanism. This mechanism compensates users depending on how much cryptocurrency they currently own, decreasing computational work. Because “proof of stake has essentially no emissions”, it doesn’t require mining. The switch to “Ethereum 2.0” could reduce NFT energy use by 99%, according to McGill. However, this shift has yet to occur, and the community is beginning to worry if it ever will.
“One can minimize the implications of NFTs by establishing systems on ‘Layer 2’ rather than directly on the blockchain,” Köhler said. Layer 2 transactions packed together, resolved off the chain, and then brought back on the chain as a single transaction, resulting in a more efficient network.
Other marketplaces have already adopted the PoS concept. For example, NBA’s Top Shot, a platform where basketball fans can buy NBA highlights as NFTs, relies on the Flow blockchain. It significantly requires less CPU power and emits far fewer emissions. And it has positive results! Every time a new “Moment” becomes available on the platform, hundreds of thousands of users try to purchase it. As a result, saying that all NFTs are equally hazardous for the environment is an oversimplification.
Carbon Offsets and Accountability
Carbon offsets are one of the most prevalent ways for platforms and artists to reduce their emissions. Several well-known digital artists, including Beeple, came together in late March to sell carbon-neutral artwork and raise donations for the Open Earth Foundation. The monetary benefits from the sale proceeded to fund the “development of blockchain technology for climate accountability,” and each artist and artwork earned 60 carbon offsets.
Offset has just released a tool to assist artists and purchasers in calculating their emissions for a single Ethereum wallet. Carbon offsets are one of the most prevalent ways for platforms and artists to reduce their emissions.
Several well-known digital artists, including Beeple, came together in late March to sell carbon-neutral artwork. They raise donations for the Open Earth Foundation. The monetary benefits from the sale funded the “development of blockchain technology for climate accountability.”
Also, each artist and artwork earned 60 carbon offsets.
Offset has just released a tool to assist artists and purchasers in calculating their emissions for a single Ethereum wallet. Whether or not there is a production of NFTs, Ethereum continues to run. However, because minting new NFTs causes a rise in emissions if increased NFT demand on the blockchain increases energy to burn, makers and purchasers are becoming increasingly liable for their portion of Ethereum’s total energy use. One of the most prominent NFT marketplaces, Nifty Gateway, recently made an announcement. It intends to become “carbon negative” by purchasing carbon offsets and improving its system.