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Writer's pictureNina Tsenova

How NFTs Affect the Environment



Author: Toon Pierre



NFTs, or non-fungible tokens, are unique digital assets often used to represent art, music, or in-game items. Their creation and trading on blockchain platforms have revolutionized digital ownership, offering exciting opportunities for artists and collectors. However, a significant downside is their environmental impact, primarily due to how they are created and maintained on energy-intensive blockchains.


How NFTs Use Energy


Most NFTs are created and traded on the Ethereum blockchain, which traditionally operates on a system called proof-of-work (PoW). PoW requires powerful computers, or miners, to solve complex mathematical problems to validate transactions and secure the network. This process is extremely energy-consuming, as these machines run continuously to maintain the blockchain. To put it into perspective, minting (creating) or trading a single NFT can use as much energy as an average household consumes in a month.


This high energy consumption leads to significant carbon emissions, as much of the electricity used by miners comes from non-renewable sources. As NFT popularity grows, so does the energy demand, raising concerns about the environmental cost of this technology.


Carbon Footprint of NFTs


The carbon footprint of NFTs is substantial. A study by Memo Akten, a computational artist, found that the average NFT transaction emits around 200 kilograms of CO2. To understand the scale, this is equivalent to driving a car for approximately 800 kilometers or the monthly electricity use of a European household. Given the number of transactions required to create, buy, and sell NFTs, the overall environmental impact is staggering.


Greener Blockchains


Fortunately, not all blockchains are equally energy-hungry. Some have developed alternatives to PoW that are far more energy-efficient. One such alternative is proof-of-stake (PoS), which eliminates the need for energy-intensive mining by selecting transaction validators based on the number of tokens they hold and are willing to “stake” as collateral.


  • Ethereum 2.0: Ethereum itself is transitioning from PoW to PoS in an upgrade called Ethereum 2.0. This shift is expected to reduce Ethereum’s energy consumption by 99.95%, making it far more sustainable for NFT transactions. While the transition is gradual, this change is a promising step towards reducing the carbon footprint of NFTs on one of the most popular blockchain platforms.


  • Tezos and Flow are examples of blockchains that already use PoS. Tezos, for instance, has become a popular choice for eco-conscious NFT creators due to its low energy consumption. A single transaction on Tezos uses about the same amount of energy as sending a tweet, a massive improvement over PoW-based blockchains.

    These greener blockchains provide a more sustainable option for those looking to create or trade NFTs without contributing to excessive energy use and emissions.


NFT Carbon Offsetting


To address the immediate environmental concerns surrounding NFTs, some artists and platforms are turning to carbon offsetting. Carbon offsetting involves investing in projects that reduce or remove carbon from the atmosphere, such as reforestation, renewable energy initiatives, or carbon capture technologies. This way, the carbon emissions generated by NFT transactions are "balanced" by supporting environmentally friendly projects.


Examples of carbon offsetting in the NFT industry:


  • SuperRare, a well-known NFT marketplace, offers users the option to offset the carbon emissions of their transactions by purchasing carbon offsets directly on the platform.

  • ArtStation attempted to launch its own NFT marketplace in 2021 and promised 100% carbon offsets for all transactions after facing backlash over environmental concerns.

  • Offsetra, a service used by many NFT creators, helps artists calculate their carbon footprint and offset emissions by investing in carbon reduction projects.


While these efforts help reduce the immediate environmental damage caused by NFTs, they are not a long-term solution. Critics argue that carbon offsetting is a temporary fix, as it doesn't address the root issue of high energy consumption. Additionally, the effectiveness of carbon offset projects can vary, with some being criticized for lack of transparency or having limited long-term benefits. Over-reliance on offsets could delay the necessary technological changes that would truly minimize the environmental impact of NFTs.


Looking Ahead: NFTs and Sustainability


As the NFT industry grows, there are encouraging trends and technological advancements that could significantly reduce its environmental impact in the future.


The shift to proof-of-stake (PoS): As mentioned earlier, Ethereum’s move to PoS with Ethereum 2.0 is one of the most significant changes underway. PoS is expected to drastically reduce the energy consumption of the Ethereum network, making NFT transactions far less carbon-intensive. This transition, along with other PoS blockchains like Tezos and Flow, represents a major step toward more sustainable NFTs.


Layer 2 scaling solutions: Another promising development is the rise of Layer 2 solutions like Polygon, which help scale blockchain transactions without overloading the main network. These solutions allow transactions to occur "off-chain" and then bundle them into the main blockchain, drastically reducing energy consumption and transaction costs. NFT platforms adopting Layer 2 solutions can process transactions more efficiently, reducing the environmental impact.


Renewable energy sources: Blockchain platforms are also beginning to explore ways to power their operations with renewable energy. Some miners and validators are shifting to solar or wind power, reducing the reliance on fossil fuels. In the long run, widespread adoption of renewable energy within blockchain ecosystems could significantly reduce the carbon footprint of NFTs.


Consumer awareness and demand for greener NFTs: As more people become aware of the environmental impact of NFTs, the demand for sustainable alternatives is growing. Consumers are increasingly choosing eco-friendly NFT platforms, and creators are opting for greener blockchains. This shift in consumer behavior will likely push more platforms to adopt sustainable practices.


Predictions for the future:


  1. Mainstream adoption of PoS blockchains: As Ethereum and other major blockchains transition to PoS, we can expect NFTs to become much more environmentally friendly. The transition will likely drive wider adoption of PoS technologies across other blockchain platforms as well.

  2. New eco-conscious marketplaces: In the future, we may see more NFT marketplaces exclusively using low-energy, sustainable blockchains. These platforms will cater to environmentally-conscious users and artists, offering an alternative to PoW-based platforms.

  3. Government regulations: As the environmental impact of blockchain technology becomes more widely understood, governments may step in with regulations or incentives to encourage the adoption of greener technologies. This could further accelerate the shift towards sustainability in the NFT space.


Conclusion


While NFTs are revolutionizing digital ownership, their environmental impact cannot be ignored. The energy-intensive process of minting and trading NFTs, especially on PoW blockchains like Ethereum, has led to a substantial carbon footprint. However, the industry is moving in the right direction with the adoption of PoS, Layer 2 solutions, and renewable energy. In addition, carbon offsetting initiatives are helping mitigate the damage in the short term.


As technology advances and awareness grows, the NFT industry is poised to become more sustainable. By embracing greener blockchains, implementing energy-efficient technologies, and shifting to renewable energy sources, NFTs can continue to thrive without harming the planet.

 



 

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