NFTs are the latest crypto trend that our planet cannot afford
Cryptocurrency is becoming more mainstream. It's not just the fact that Bitcoin and other digital currencies are growing in value; it's the underlying technology, the blockchain, that is finding more and more use cases. The latest is non-fungible tokens, or NFTs — essentially, one-of-a-kind items that can be bought, sold, traded, and maintained entirely digitally. The technology has taken the art and collectibles world by storm, creating new opportunities for creating and monetizing digital art, from the virtual equivalent of trading cards to original copies of famous GIFs.
Everyone seems to be getting in on the trend, with NFT albums and movies on the way. But while they continue to grow in popularity and in price, there is another cost associated with these unique digital tokens that has nothing to do with the price tag: their carbon footprint. There may be no physical media to hold — no plastic containers produced, no shipping required — but there is still the very real and increasing amount of emissions that are required to power the digital art trade.
The reason for this stems from how the blockchain operates and where it draws its energy from. Imagine your bank account, which keeps a detailed list of all the places you've spent money at and all of the money that is coming in. The blockchain keeps track of all transactions — not just yours, but everyone's — with a detailed log of every purchase, sale, trade, and creation or release of something new, be it cryptocurrency or an NFT. And instead of storing it in a central place, the ledger is decentralized and distributed across tens of thousands of computers. By distributing the full list of transactions this way, many different sources can independently verify each transaction and make sure that every bit of data is where it belongs.
Bitcoin is the most well-known cryptocurrency, but most NFTs are created and traded on the Ethereum blockchain. This is because the Ethereum blockchain supports the necessary technology needed to create NFTs, which requires the ability to store additional metadata and other information that is not currently supported by the blockchain that powers Bitcoin. While Bitcoin has come under fire recently for the surprising amount of carbon emissions that each transaction generates, Ethereum likewise has a carbon footprint problem.
"Public networks like Bitcoin and Ethereum are notoriously energy-hungry."
According to the Ethereum Energy Consumption Index, a tracker created by Digiconomist — a platform that monitors "unintended consequences of digital trends" — the Ethereum blockchain's carbon footprint has been skyrocketing over the course of the last year as NFTs have started to gain steam. At the time of publication, the cryptocurrency was consuming just over 58 kilowatts of power per transaction — the equivalent to the amount of power the average U.S. household uses in two whole days. Annually, Ethereum is projected to have about the same carbon footprint as the entire country of Panama, producing over 12 million metric tons of carbon emissions.
"The problem here is the energy-intensity of the underlying blockchain being used," Alex de Vries, the founder of Digiconomist and a data scientist focusing on financial economic crime for De Nederlandsche Bank, tells Mic. "Public networks like Bitcoin and Ethereum are notoriously energy-hungry, and that affects the NFTs being built on it. This will only get worse with the rising prices of Bitcoin and Ethereum."
Another tool, Cryptoart.wtf, was created to estimate the carbon footprint of an individual NFT to put into perspective the cost of creating and trading these digital pieces of art. A single NFT recently sold on the digital art marketplace SuperRare carried with it the same carbon footprint that the average person in the European Union would produce over three-and-a-half weeks. In some cases, the harm is much greater: When artist James Jean sold his first NFT, it was found to be responsible for more than 400,000 kilograms of carbon emissions. It would take the average person 194 years to match that carbon footprint.
Brendan McGill, a software engineer and the co-founder of Carbon.fyi, an emissions calculator for Ethereum wallets, says that it's important to note that while there is an environmental cost associated with NFTs, it's not quite as simple as saying "clicking 'mint' on an NFT will directly burn hundreds of kilowatt-hours of energy." According to McGill, 99% of the energy consumed in cryptocurrency transactions is consumed by people who are verifying that each transaction is legitimate. This process, known as mining, requires a lot of computing power, as a miner needs to decipher a series of very difficult codes that ultimately confirm each transaction. Because there is no central source to confirm everything, miners need to offer up the processing power of their own machines each time an equation needs to be solved.
"This computation happens totally independent of transactions or NFTs ... or any other data in the block," McGill explains. "Miners are not choosing to mine because they want to process your NFT. They are mining because they are speculating that sometime in the future, the value of Ethereum might go up." This is because miners are rewarded for contributing to the blockchain (by solving these codes) with Ethereum, a cryptocurrency token similar to Bitcoin.
While the fact that the mining process would likely be occurring without NFTs may take some of the climate burden off of the digital art trade, it's not exactly encouraging. After all, the takeaway is that a significant amount of carbon emissions would be burned no matter what. While some miners have tried to turn to clean energy solutions to minimize the impact of their mining, they are in the minority; Cambridge University's Centre for Alternative Finance found that over 60% of miners still rely on dirty-burning fuels like natural gas, oil, and coal.
Even if miners do increasingly switch to clean energy sources, de Vries would still have concerns. "I don't think the energy transition provides an excuse to waste as much energy as we want," he says. "An obvious problem here is that cryptocurrencies may be using green energy that we could have used to clean up the grid elsewhere."
"Too much carbon has already been emitted by these networks, tons of money has been made, not nearly enough of that has gone to pro-climate initiatives."
He argues that the best fix for the environmental impact of NFTs and other crypto-centric transactions would be to replace the mining mechanism entirely with a greener alternative. "It's possible to completely eliminate the need for wasting energy this way," he says. "In fact, some NFTs are issued on blockchains that have already made such a switch."
McGill is confident that Ethereum can achieve this, stating that the roadmap that has been laid out to eliminate the mining process is "really promising" and could "almost completely eliminate the emissions we are seeing right now."
This would require ditching the old system for confirming transactions, known as "proof of work," and adopting a model called "proof of stake" in its place. Instead of relying on complicated cryptography and encryption, proof of stake requires users to stake their own shares of Ethereum in order to validate a transaction. Essentially, if miners put skin in the game, they will be incentivized to accurately validate the information.
The result would be ETH2, a blockchain that would require less energy consumption and would lower the barrier of entry for miners. The problem is that Ethereum has been promising this model for years, with no clear timeline for when it will actually be implemented.
"My dream would be to see the Ethereum network step up and pay to offset their entire footprint until ETH2 actually comes out," McGill says. "Crypto is awash with cash right now, we could totally make that happen. Too much carbon has already been emitted by these networks, tons of money has been made, not nearly enough of that has gone to pro-climate initiatives."
For now, though, the people fortunate enough to buy and sell NFTs will turn a profit, the miners enabling each transaction will turn a profit, and the planet will continue to pay the price.
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