The market for non-fungible tokens (NFTs) has grown exponentially over the past year. This has led to many brands considering whether or not to jump on the craze. However, there is some controversy around the environmental impacts of NFTs.
Many argue that NFTs are bad for the environment, which has also stirred up backlash from consumers and environmentalists. For instance, in the world of K-pop, BTS fans have lashed out against the artists after they launched an NFT collection, citing environmental concerns.
So, are NFTs bad for the environment?
How do NFTs Impact the Environment?
Blockchain technology is helping to usher in a new iteration of the Internet, which is widely known as Web3. One of the key advantages of blockchain is that it can help decentralize the web. How?
By allowing data to be stored and managed by a democratic network of users, rather than a few giant middlemen who control everything according to opaque rules that they set.
Instead of relying on a single, centralized source, Web3 relies on blockchain-powered crypto networks that allow data to be stored on distributed devices (also known as “nodes”) around the world.
In this sense, it makes sense to think of the blockchain as a shared digital collection of data transactions, i.e. a public ledger.
Individual transaction records are stored in blocks that are linked together to form a ledger chain (hence the name “blockchain”). The core principle at work here is that the users in the system, not third parties like banks or Big Tech companies, validate the transactions that occur within the system.
This happens through consensus. For a block and the data transactions it contains to be added, a majority of the computers (nodes) in the network must agree to the validity of the block.
Achieving this requires a complex system, involving network users performing two distinct functions. Using special software, some users validate that a transaction has been requested and that it is genuine.
Other computers on the network perform a much more difficult (and energy-intensive) calculation to establish network consensus and add the next block, something known as “mining.” To do this, network nodes, which are often giant mining servers, must solve complex mathematical problems rooted in cryptographic algorithms.
This process is known as proof-of-work (PoW) validation. In particular, achieving network consensus in this way is energy intensive by design. The idea is that requiring a resource-intensive computer process just to try to alter the ledger will discourage people from doing so.
In short, demanding excessive amounts of energy is a fundamental part of how PoW blockchains work.
Additionally, miners are usually incentivized to mine with rewards that often take the form of small amounts of cryptocurrency. This has the double effect of making the blockchain even more secure.
The more nodes in the network try to verify blocks, the more difficult it will be for a malicious actor to take over most of the nodes in the system, allowing them to rewrite the ledger.
What all of this means is that, on a blockchain that uses PoW consensus, the more secure it is, the higher its power consumption.
When someone creates an NFT, sells an NFT, or buys an NFT, they are transacting on the blockchain.
As described above, these transactions must be validated and added to a block, which requires energy. In this regard, some argue that NFTs can harm the environment through their energy demands.
How much Energy do Blockchains and NFTs Use?
To be clear, the energy consumption of large blockchains is massive in scale. Looking at the combined energy usage of Bitcoin and Ethereum (prior to Ethereum’s historic September 2022 upgrade, which we discuss below), the two consumed over 317 TWh of energy per year, putting the chains somewhere between Italy and the United Kingdom in terms of electrical energy consumed.
The amount of energy Bitcoin uses is so great that the University of Cambridge has even created a Bitcoin Electricity Consumption Index, which presents the figures in a number of interesting ways.
Those are numbers worth appreciating. And if NFTs are based on this infrastructure, it is not unreasonable to assume that they would have a massive impact on the environment. However, these numbers mean little without context.
For starters, many global industries consume more energy than entire countries. Blockchain is far from unique in this regard. In fact, Bitcoin is the largest blockchain in the world – it is head and shoulders above other blockchains in terms of its power requirements.
However, even Bitcoin’s energy needs rank near the low end of relatively small mining industries like copper and zinc. If you need more comparisons, the total annual energy consumption of Bitcoin is less than what is required by the world’s residential air conditioning units.
It’s also less than the power needs of the world’s data centers like Apple, Google, and Amazon.
Of course, this does not mean that blockchain and NFT have no impact on the environment. However, once you stop to consider things in their proper context, the harsh moralistic tones used by those who condemn NFTs seem less warranted.
And then there’s the issue of inconsistent optics.
In general, when we think about the energy requirements of the various technologies we use, we frame things in a specific and localized way. How much gasoline did we use to fill our car last month? How much electricity do we use to power our house for a day?
We don’t tend to think about how much gasoline each car uses or how much energy each house uses. And we use relatively small time frames when we consider each one.
Interestingly, there is a tendency to do the opposite with blockchain. Instead of considering the technology’s energy consumption on a localized scale, people say “Bitcoin uses this amount of energy per year.” And the huge numbers make people recoil in horror.
However, seeing things this way ultimately leaves one with an unfair and biased view of NFTs, as the blockchain is used for much more than just NFTs. To truly understand the relationship between NFTs and the environment, we cannot use numbers in relation to the entirety of a blockchain. We need to determine how much energy an NFT transaction uses.
Unfortunately, that is easier said than done. It is true that researchers have attempted to contextualize the impact of individual blockchain and NFT transactions in the past, producing well-intentioned but misguided studies that claim to analyze the amount of energy required to power a single transaction in Bitcoin, for example. However, these findings are deeply problematic.
Last fall, Juan Ignacio Ibáñez, a researcher at the Center for Blockchain Technologies at University College London, published a report with colleagues titled “Energy Footprint of Blockchain Consensus Mechanisms Beyond Proof of Work.”
It is the only comparative study of the energy consumption of various blockchains of this type. In an interview, Juan described the problems with previous studies.
“You may have heard that in order to send a Bitcoin transaction, you have to expend as much energy as it takes to power a medium-sized house for three months.
These are imperfect analogies because Bitcoin is not actually mining transactions,” Juan explained. “They are mining blocks. The blocks have many transactions inside them. If a block is not full, each additional transaction you add costs you nothing in terms of energy,” he explained.
In short, this means that previous arguments often equated an NFT transaction with creating an entire block on the blockchain. That’s just not how things work.
Miners will continue their work even if there are no transactions to record in a block, as they are incentivized to do so through the aforementioned crypto payments. So the ecological cost of zero NFT transactions, ten, and the value of a full block of NFT transactions is exactly.
However, before yelling at NFT artists for incentivizing blockchain mining, it’s worth knowing that oil giant BP is the one who introduced the idea of an individual carbon footprint. Why? Because they wanted to blame the environmental catastrophe on consumers.
So when he criticizes NFT artists for harming the environment, know that he is playing into the hand of Big Oil. And if you still feel justified in criticizing NFT artists for environmental reasons, consider what you would suggest as a better alternative.
Should artists go back to selling their art on t-shirts? Because according to Princeton’s Ngan Le, “The fashion industry is currently responsible for more annual carbon emissions than all international flights and shipping combined.”
That’s not exactly a better alternative.
Is there a Future for Green NFT Sales?
The effect of proof-of-work mining on the land is enough to cause anyone climate anxiety. So if NFTs are bad for the environment, what can we do?
Ideally, mining operations should be powered by clean energy, such as wind, hydro, solar, or zero nuclear. According to the Clean Energy State Alliance, 21 states, in addition to Puerto Rico and Washington, D.C., are committed to providing 100% clean energy in the coming decades.
While that’s encouraging, it doesn’t solve the problem right away. But there is something the cryptocurrency and blockchain markets can do to go greener in the meantime. It all depends on proof of stake.
Proof of work versus proof of stake
While the proof-of-work process pits miners against each other to earn crypto, proof-of-stake chooses a random miner to do the work of minting and verifying, using less complex processes. This reduces the number of computers used for any mining task. As a result, it uses less energy.
Ethereum Merge Reduced Energy Consumption by 99%
This is significant as it shows that blockchain has the potential to evolve in a positive way. In fact, Ethereum, the second-largest blockchain in the world, has already done so. After years of careful research and preparation, the chain officially migrated to the PoS consensus on September 14, 2022.
The numbers keep coming, but Ethereum developers and independent experts expect the blockchain’s power consumption to drop. at least by a staggering 99.95 percent.
Calaxy is an online marketplace that uses exclusive cryptocurrencies for content creators on its platform. It is based on Hedera Hashgraph, a blockchain whose power consumption was ranked the lowest in the UCL study.
So to say that blockchain is an environmental disaster is to ignore that the flaws in those systems are already undergoing change. It ignores the fact that the teams behind these systems are already hard at work on improvements to make things better.
Can the same be said for other industries? Again, this is not to say that blockchain and NFT are harmless and have no impact on the environment. But it does question the legitimacy of the harsh sentences handed down against them.
Green Blockchains Already Exist
Ethereum gets mentioned a lot in this conversation, that’s because Ethereum is the most popular blockchain in the world when it comes to NFTs. But it is far from the only place to trade.
For example, there is Solana. Its unique combination of proof of history (PoH) and PoS consensus mechanisms leads to substantially reduced validation times and power usage. The blockchain is also supported by a variety of popular NFT marketplaces like Magic Eden and Solanart.
If you’re looking for an even greener alternative, consider the Tezos blockchain. Tezos rose to popularity in early 2021, and it’s Liquid Proof-of-Stake (LPoS) mechanism uses roughly two million times less energy than Ethereum (before the merger). One of the most popular NFT markets on Tezos is Rarible, which also supports the creation of NFTs.
There is also Aorist on Algorand and Galaxy of Art and CNFT on Cardano. So if you want to support NFT artists and blockchains that are already optimized for minimal power usage, you have several options.