What Is the Environmental Impact of NFTs?

Digital goods could cause serious damage to the natural world.

Perhaps the only thing hotter than NFTs at the moment is, uh, the Earth.

As people scramble to understand blockchains, trade cryptocurrencies, and mint NFTs, fossil fuels continue to be burned, carbon released into the atmosphere, and polar ice caps melt. It’s easy to get carried away in the heat of new developments in the digital world, but even easier to forget that they have very real effects on the natural world, too.

NFTs (non-fungible tokens)—which can come in the form of drawings, music, metaverse real estate, and even selfies—are gaining speed in the digital space. They present new opportunities for artists to earn from their work, and buyers a way to support creators and, well, the bragging rights of owning exclusive content. But they have also received backlash over their environmental impact.

You see, NFTs are normally hosted on blockchain platforms and traded using cryptocurrency, things that are known to be huge energy hogs. How? We’ll explain broadly in a bit, but in a nutshell, it’s because it takes loads of computing power to get the whole NFT ecosystem going.

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Some believe there are ways to mitigate NFTs’ environmental costs. Beeple, an artist who sold an NFT for $69 million, has expressed interest in making his work carbon neutral or even carbon negative. He told The Verge that he can do this through offsetting the emissions from the minting and trading of NFTs by investing in renewable energy, conservation projects, or technology that takes carbon out of the atmosphere. 

But what exactly is the impact of NFTs on the environment, and what can be done about it?

VICE asked blockchain experts to explain the current environmental impact of NFTs, as well as the ways blockchain technology is evolving to possibly ease its impact on the environment in the future.

Why does it take so much energy to trade NFTs?

The main reason NFTs are so energy-hungry is because they’re hosted on blockchain platforms. If blockchain is a book of records that everyone’s able to see, then there also needs to be people validating those records. 

This is where “miners” come in. Miners are basically the auditors of blockchain platforms and they use their computers or “rigs” to compete with each other to validate transactions in exchange for tokens and rewards. It’s sort of like a game where the platform offers a puzzle for miners to decrypt, and then chooses a correct answer at random, explained Matthew Azada, a cryptocurrency trader and investor. This consensus mechanism is called “proof-of-work.” 

Since miners compete with each other to win rewards (usually in the form of cryptocurrencies like Ethereum and Bitcoin), they often pool their efforts to increase their odds of being chosen—sort of like a lottery. 

How much energy does it normally take to trade NFTs?

According to artist Memo Akten, minting an Ethereum-based NFT alone requires 142 kWh of energy. This is the equivalent of about 100,000 Visa transactions, said Dexter Baño Jr., an advocate for environmental protection and technological advancements. To further illustrate how huge that figure is, he noted that in 2019, American households only used an average of 30 kWh of energy per day. 

“This means that you can power a house in the United States for 4.7 days with the energy being used to mint an NFT,” he said. 

Now, if you’re in the mood for some math: 

“Based on data from the Energy Information Administration, there are 0.85 pounds of CO2 (carbon dioxide) released into the air per kWh of electrical energy used. Multiplying this by the amount of energy spent on each mint transaction on Ethereum, that snowballs to 120.7 pounds of CO2 for every NFT creation. This is 6.16 times the CO2 output of burning one gallon of gasoline,” Baño said.

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It’s important to note that this only covers the creation of one NFT. The process of buying and selling each NFT involves more transactions that need to be verified—mined—and therefore even more energy that goes into all that extra computer activity.

“Since NFTs are getting mainstream, more people are transacting on Ethereum. As long as proof-of-work still exists in that chain, the environmental impact is still high,” said Angeline Viray, who trades and invests in cryptocurrencies and NFTs.

So are all NFTs bad for the environment?

Many blockchains run on the high energy-consuming proof-of-work mechanism, but that isn’t the only way for blockchains to work. Some claim that another mechanism that is now gaining popularity is better for the environment.

“Many new blockchains are focused on and already are reducing their overall impact on the environment, including Ethereum itself, as it’s gearing toward its shift from proof-of-work to a proof-of-stake consensus mechanism,” said JM Erestain, the co-founder of Gibki Labs, a digital transformation agency specializing in blockchains.

Instead of having all computers in the network validate each transaction and throw in their bets like in a lottery, the proof-of-stake mechanism has computers “‘stake’ your coins [to] become a validator,” explained Paul Soliman of Bayanichain, a group that aims to accelerate the adoption of digital assets in the Philippines.

In other words, potential miners need to deposit a certain number of coins to the network as an assurance that they won’t be validating any fraudulent transactions. “The network then randomly selects a validator in a completely unpredictable way,” said Soliman. “Once your node is selected, you validate transactions being done and receive a reward if your validation is correct. If you’re wrong, the network penalizes you and takes away coins from your stake.” 

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According to Soliman, this makes the whole verification process more energy-efficient, since it narrows the playing field to those willing to shell out value to earn a spot, and further down to the ones the network picks out for a certain round. This eliminates the free-for-all where all computers race to become the first to find a solution, such as in the proof-of-work model. 

So why don’t all blockchains just use the proof-of-stake mechanism?

For one thing, it’s very difficult for blockchains to make the switch while staying functional. 

Also, because some systems select validators that stake the most money, the mechanism can tend toward centralization (opposite of the decentralization that blockchains are known for). The mechanism also hasn’t been proven to be as secure as proof-of-work.

However, Ethereum said it has already been taking strides towards the proof-of-stake model. The eventual shift is predicted to reduce the environmental impact of Ethereum by 99 percent, said Tim Beiko, the coordinator for Ethereum’s protocol developers.  

Are there more environmentally-friendly ways to get into NFTs?

Yes, according to Soliman.

“Firstly, purchase NFTs that are on greener blockchains, usually those that are on the proof-of-stake consensus model. This makes sure that your act of purchasing itself is greenly responsible.”

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Tagged:

Environment, Art, blockchain, cryptocurrecy, NFT

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