Due to the awareness of ecological damage and climate change caused due to technology, the artist and industry experts are now questioning the environmental impact of NFTs. Although there has been much rise in the trading and mining of this digital art, it is essential to determine its environmental risk.
Non-fungible tokens use blockchain technology which makes these digital assets unique. Moreover, the transaction of these NFTs doesn’t require any third party. It has gained much value in the past few years, especially among artists.
But there are several environmental impacts associated with the NFT that concern the artist. Today’s artists have taken many actions to combat climate change and reduce NFT carbon footprint.
How do NFTs work?
NFTs use blockchain technology for certifying the ownership of any assets. These digital assets hold all information which makes them different from the cryptocurrency. On top of that, NFTs cannot be replaced with similar NFTs as they are non-fungible.
Most of the NFTs opt for the Ethereum blockchain for transferring ownership. However, the payment made for transferring the ownership of assets includes the gas fee, which confirms the transaction. The platforms use high energy when buying and selling NFTs, showing some harmful environmental effects.
What makes NFTs valuable?
There are several reasons which make NFTs quite valuable-
- NFTs are unique: Unlike any other digital assets, NFTs are unique and cannot be replaced, which makes them beneficial for investors and collectors.
- NFTs are scarce: NFTs have a limited supply, which increases their value.
- NFTs are durable: The NFTs are stored in the blockchain, basically a decentralized ledger. These blockchain technologies make NFTs relatively stable compared to other digital assets.
- NFTs are dividable: An investor can divide the NFTs into smaller units, making them relatively easy to liquefy and trade.
- NFTs are portable: An investor can easily transport and store NFTs.
- NFT are verifiable: Through storage in blockchains. NFT becomes easy to verify.
Is NFT bad for the environment?
The future of blockchain is quite bright, and many digital artists sell their work every day. The first 5000 days are for a staggering $69 million bids and are believed to be the most sustainable future on the NFTs. A digital artist “Beeple” believes that he can reduce the emission of CO2 through his NFTs.
This is because; some of the money is invested in renewable energies, developing technologies, and environmentally friendly projects which reduce CO2 emissions. However, the money is donated to build blockchain technology to ensure people contribute more to climate change.
Blockchain technology helps track the carbon footprint of every NFT and its creators. The solution to reduce the environmental impact of NFTs and make them more sustainable is already started, and there are three ways through which NFTs can become sustainable.
- One way is using renewable energy to power the blockchain system.
- Another way to create carbon-neutral or carbon-negative NFTs.
- And the third way is to develop a new technology that reduces energy consumption in the blockchain system.
How NFTs affects the environment?
The environmental changes in NFTs result in suffering for the whole crypto industry. Most NFTs use the Ethereum blockchain, a Proof of work system, to confirm every new block, which means every computer network races to solve the complex system.
The first network confirms the blocks and collects the gas fee which is associated with the block. Thus, as the cost of NFTs climbs, the gas fee increases. As a result, the miners invest more in computer power, which boosts energy consumption.
Therefore, the energy used in the transaction comes from sources that emit greenhouse gases that can show some severe negative impacts on the environment. Consequently, it is challenging to identify how NFTs affect the environment.
NFTs generally represent a small portion of the transaction in the Ethereum blockchain, which makes it skeptical why trading and minting use much energy compared to regular money transfers.
Why NFT uses high energy?
To understand why NFTs use so much energy, it is essential to learn how blockchain works. A blockchain is typically a distributed ledger in which cryptocurrencies like Ethereum and bitcoin reside, and it records all the information, transaction details, and data anyone can see.
However, the process of verifying data in the blockchain network uses high energy, which generates greenhouse gases across the globe. And since NFTs use blockchain for minting, trading, and selling digital art, it automatically contributes to the usage of high energy consumption.
The transaction that is built on Proof of work consumes more energy as compared to Proof of stake. There are so many organizations that keep on tracking the energy consumption and carbon emissions that are associated with NFTs and cryptocurrencies.
What is the carbon footprint of the NFTs?
As it is next to impossible for someone to predict the ecological cost of crypto art, different estimates come in the count, which gives an idea of the carbon footprint of the NFTs. For instance, the weight of single edition artwork on the Ethereum blockchain is 100kg (2220 pours) of CO2, approximately equal to a one-hour flight.
Digital artists have analyzed 18000 NFTs and evaluated that the average carbon footprint of NFTs is equal to the electricity used in more than one month. Therefore, this new technology has impacted the environment significantly and taken the world back to the industrial revolution. Besides, this progress has also resulted in environmental damage. It is found that NFT mining and trading and data centers have shown some severe harmful impacts on the environment.
Data centers are an infrastructure of networked computers that store, process, and distribute extensive data. Whenever we text a message or drop a mail, the information is transferred through these data centers, which ultimately uses high energy. It is believed that data centers use 1% of global energy.
During the pandemic, internet usage rose considerably, contributing to 3.2 million metric tons of CO2 emission. However, to make you understand the impact, consider one metric tone equivalent to the weight of one car. No doubt, every digital process consumes some energy to carry out the process. Some use high while others use a minimal amount, but there is energy consumption in every digital transaction.
For example, the banking industry consumes 263.72 Terawatt hours annually. Another example is bitcoin, a popular cryptocurrency that consumes high energy in the blockchain network.
As a result of this, crypto mining has become a cause of concern for the environment. Today more and more data revolves around bitcoin mining, due to which it has become quite challenging to estimate the environmental impact because of blockchain technology.
It is because; blockchain relies on different processes, causes, and measures. However, it is believed that the Ethereum blockchain uses less energy in the mining and trading NFTs, due to which many digital artists opt for the Ethereum blockchain over bitcoin. These are more stable and reliable.
What is the impact of NFT stored in Ethereum?
There are so many studies that determine the energy consumption of cryptocurrency. Surprisingly, the figures on all the reports could be more precise. However, 30 to 70% of cryptocurrency mining is through renewable resources, and therefore, mining on different cryptocurrencies uses an additional energy efficiency.
For instance, Ethereum mining uses energy as compared to bitcoin mining. Every year, Ethereum mining consumes approximately 44.94 terawatt hours of energy which means it releases nearly 21.35 carbon dioxide into the environment. The Ethereum transactions use ETH as a gas, and the amount is recorded on the blockchain.
Therefore, the gas percentages rely on the amount of transaction data. NFTs are heavy data digital items. This is because; it involves several transactions like minting, trading, bidding, and ownership transfer. Therefore, the transaction’s transparency makes assessing NFT footprints relatively straightforward.
However, NFTs use more energy than everyday money transactions, polluting the environment. As the number of people creating, trading, and storing NFTs increases, the number of energy-intensive transactions is also increasing. It contributes to the rise in carbon emissions and has a direct environmental effect.
A difference between Proof of work and Proof of stake is energy consumption.
Blockchain technology permits the investor to buy, sell and store NFTs without any mediator. However, the transaction done in NFTs requires tech-savviness as trading might be challenging. However, there are several marketplaces where artists can trade NFTs seamlessly. Most of these marketplaces are generally based on the Proof of work blockchain.
The Proof of work blockchains is highly energy inefficient. Along with that, most sustainable blockchains are based on the Proof of stake algorithm. These alternative blockchains use less energy as compared to Proof of work. In addition, Proof of stake determines more ecological NFTs. However, these blockchains are skeptical about getting hacked as they are new in the market.
The first reason these blockchain networks are least attractive is that art buyers do not want their artworks to disappear one day. Meanwhile, the platform doesn’t have any specific value compared to its sustainable counterparts, and it is difficult for the artist to buy and sell NFTs easily and quickly.
Today, more and more artists are becoming aware of alternative energy-efficient options, and it is believed that these platforms will lead to a more eco-friendly and transparent marketplace in the future. For years, Ethereum announced that the blockchain would completely switch to Proof of stake, reducing energy consumption while trading and minting NFTs.
Additionally, many NFTs platforms opt for private blockchain technology. These private technologies are highly centralized and follow quite a different concept than the actual blockchain, meaning it doesn’t require any third-party intermediary.
What steps can be considered for improving the NFT’s carbon footprint?
If Ethereum switches to the Proof of stake algorithm, it will consume less energy. The platform’s development team has maintained it for years, but the process has yet to materialize. Due to this, it becomes questionable whether this strategy will be achieved or not. Therefore, an Ethereum developer can quickly eliminate carbon emissions and reduce costs by making systems on the existing blockchain.
With two layers system, the energy consumed will be much less than usual. This is because all the transactions will take place off-chain. Let’s understand it with an example. Imagine a bitcoin lightning network is built in the layer second of blockchains, then the whole is now remarked as a bitcoin payment system. This way, it will be environment-friendly and scalable.
Now when people what to trade NFTs, they can easily open layer two and make virtual trading until their transaction is ready to settle in layer one. This way, the blockchain base layer will not be compiled with unlimited transactions but only with the net result.
It saves much energy during data-intensive transactions. However, there are other ways through with you can trade in the NFT marketplace that has become flourishing without any impact on the environment.
Using a proof of stake blockchain
Proof of stake blockchain is more energy efficient. If you are looking forward to trading NFTs, go for the Proof of stake blockchain.
Using a blockchain with green energy
Some blockchains like Ethereum use a combination of renewable and non-renewable energy sources. And there are many others like bitcoin that use non-renewable energy. Therefore, it is better to opt for blockchain with a mix of green energy as it will reduce the carbon footprint making the trading environment friendly.
Use efficient hardware
The hardware that is built to create and store the NFTs can show an impact on the carbon footprint as well. Due to this, choose hardware that is energy efficient to reduce the NFT’s carbon footprint.
Educate yourself about all the environmental effects of NFTs
Some so many people trade in NFTs but need to know how it impacts the environment. That’s why it is essential to get updated with all the environmental effects of NFTs so that you can take steps to reduce your carbon footprint.
What is the future of NFTs?
A significant push by the artist and collectors is done to make NFTs more environments friendly. Today, there is a lot of pressure on the cryptocurrency industry to eliminate or reduce the effect of crypto assets on the environment.
Today, the market demands environmental ways to buy, sell and collect NFTs. Undoubtedly, some solutions already exist, and thousands of NFTs marketplace have opted for environmentally friendly solutions.
You might today see that most of the NFTs projects are migrated to platforms and get the switch to blockchain that opts for a Proof of stake system while making the transactions.
Today, it is now believed that renewable is getting replaced by the current power generation infrastructure. Crypto developers, blockchain, and climate experts are working on reducing energy used by NFTs and making them more environmentally friendly.
Also know more about How to Make Money with NFTs?
Conclusion
NFTs have revolutionized several industries, no doubt, but an investor or seller needs to learn about the environmental effect of NFTs while trading and minting and the solution for it. In this way, every person will contribute to making NFTs more sustainable and environmentally friendly so that they do not show any negative impacts on the environment. Going to the steps that help reduce the carbon footprint is essential to ensure NFTs positively impact the world.