NFTs and the Environment

NFTs and the Environment

Do Non-Fungible Tokens (NFTs) Harm the Environment?

You may have heard about non-fungible tokens (NFTs) and how they impact the environment. Even though NFTs themselves do not cause any environmental impact, their impact on our climate can be linked to how they are produced.

The way that NFTs are created can be highly energy intensive. Since Ethereum’s transition to proof-of-stake, most NFTs are minted using a blockchain that doesn’t require the vast amounts of energy that a proof-of-work blockchain does. Blockchains that require an energy-intensive process, crypto-related or otherwise, can generate excess carbon if they consume energy from non-renewable sources.

Keep reading to understand more about how NFT production consumes energy and learn what developers have done to reduce their impact on the environment.

Key Takeaways

  • Non-fungible tokens (NFTs) may be harmful to the environment depending on how they are produced.
  • Minting a single NFT using a proof-of-work blockchain uses the same amount of electricity an average American household uses in 47.4 days.
  • Blockchain developers and communities are working to find ways to lessen or eliminate the environmental impact NFTs have.
  • Ethereum is the leading blockchain used to mint NFTs. It transitioned to proof-of-work, called The Merge, on September 15, 2022, causing a significant reduction in NFT energy use.

How NFTs Impact the Environment

NFTs themselves do not impact the environment, but how they are minted can have substantial environmental consequences. Here’s a look at how NFTs are made:

  • NFT is minted on a digital marketplace (usually): The NFT creator uses a marketplace’s platform to upload the NFT information, which is then tokenized and stored in the blockchain. Tokenization is the process of generating keys for an asset. The NFT is “minted” through this process.
  • NFT is listed: Once the NFT is minted, the creator can place it on the marketplace. The NFT can be listed at a set price or auctioned.
  • NFT is purchased: When the NFT is purchased, a blockchain transaction is initiated. The blockchain network goes to work validating the transaction and transferring ownership of the NFT to the new owner.

Different blockchains will process the transaction according to their programming. Here’s a look at the two most used consensus algorithms, proof-of-work and proof-of-stake, and how an NFT is processed in each.

NFT Via Proof-of-Work

When the NFT is purchased, a transaction takes place. On a proof-of-work blockchain, this means the network of miners must compete to be the one to validate the transaction so that they can receive the blockchain reward. The process works like this:

  • The transaction is queued and broadcast to the network.
  • Once it is picked up for work, the network begins mining.
  • Mining is the process of sending a long hexadecimal number through a hash function, like SHA-256, to generate another hexadecimal number that is less than the block header hash assigned to the NFT. A miner’s first attempt has a random number added to the original hexadecimal number, and each attempt after that adds a value of one to the random number. For instance, the first random number could be 21. The next attempt would use 22, then 23, and so on.
  • The mining process becomes a grind to generate a number, completed by a computer. The odds of guessing the right hexadecimal number is 1 in 155 quattuorvigintillion (155 followed by 75 zeros). It can take trillions of attempts to be the first to generate a number less than that of the block header, the original hexadecimal number.
  • Once the number is generated, the block is confirmed, the transaction is closed, and the network moves to the next unimaginable number of attempts to solve a hash. Sending a number through the hash function and the act of doing so is called hashing. A miner “hashes” or can “hash” at a certain speed. One attempt is one hash, and one miner can perform millions of hashes per second. For perspective, the entire Bitcoin network hashes at about 228 exahashes per second (228 followed by 18 zeros), works on one block at a time, and averages about 10 minutes per block.

The high energy requirement exists because the vast proof-of-work network works on one block at a time, all miners attempting to generate a lower number.

A single NFT transaction on the Bitcoin platform emits almost 748 kilograms of carbon dioxide, equivalent to 1.7 million Visa transactions or 124,714 hours of watching YouTube.

NFT Via Proof-of-Stake

On a proof-of-stake blockchain such as Ethereum, the NFT process through the marketplace is the same until the transaction begins:

  • The transaction is queued in the network.
  • A validator who has staked 32 ETH is randomly assigned to validate the transaction.
  • Only one validator is doing the work, so the energy consumption is much less. In fact, Ethereum claims it now uses 99.95% less energy than it did under proof-of-work consensus.
  • The validator verifies the transaction and broadcasts the information to other validators, who vote to confirm the block and transaction.
  • This process does not use competitive number generation, so the transaction uses less than 0.03 kWh of energy, or 30 Watt hours (the equivalent of around six 9v batteries).

A single NFT transaction on the Ethereum platform emits almost 0.02 kilograms of carbon dioxide, equivalent to 44 Visa transactions or 3 hours of watching YouTube.

Can NFTs Use Less Energy?

Minting and transferring an NFT can be energy intensive, but it does not need to be. Blockchain platforms using the proof-of-stake operating method can generate NFTs without excessively using electricity and negatively impacting the environment. Unfortunately, diminished energy use under proof-of-work blockchains is not yet attainable.

However, there are some options for NFT creators and fans:

  • Use renewable energy: Miners using proof-of-work blockchains can use renewable energy sources to power their machines. While proof-of-work mining is energy-intensive, the source of the required energy can be free of emissions.
  • Invest in renewable energy: With some NFTs selling for impressive prices, it’s possible to devote a portion of those proceeds to renewable energy investments. A large-scale shift to renewable energy could curb or eliminate the environmental impact of producing NFTs.
  • Invest in experimental technologies: NFT sales proceeds also can be invested in experimental technologies designed to mitigate or reverse the effects of climate change. Carbon capture and storage, which collects and pumps carbon dioxide emissions into the ground, is an example of an experimental technology that some believe can solve the climate change problem.
  • Choose NFTs minted on proof-of-stake blockchains: The most obvious choices are to only purchase NFTs minted on proof-of-stake blockchains, and only mint them on one.

Where to Buy Energy-Efficient NFTs

If you want to buy an NFT without causing harm to the environment, then you have several purchasing options. Choosing a marketplace that uses a proof-of-stake blockchain or NFTs minted on one can significantly reduce their environmental imprint. Some notable proof-of-stake blockchains are:

  • Ethereum: The blockchain used for everything from simple token exchanges to NFTs, smart contracts, dApps, and more. The NFT marketplace OpenSea uses Ethereum.
  • Solana: The Solana blockchain supports a broad range of NFT marketplaces, including Magic Eden, Solanart, and Rabbit Hole.
  • Algorand: The Algorand blockchain supports Aorist, a climate-focused NFT blockchain for artists, in addition to several NFT marketplaces. The Algorand blockchain is well suited to support NFTs because the blockchain is designed to never fork—or split—into duplicate versions.
  • Cardano: Cardano is the blockchain known for being environmentally friendly. NFT marketplaces hosted on Cardano include CNFT and Galaxy of Art.
  • Tezos: The Tezos blockchain hosts several NFT marketplaces, including Rarible, which both operates an NFT marketplace and supports artists’ creation of NFTs.

Can Environmentalists Invest in NFTs?

If you care about fighting climate change but want to invest in NFTs, you might feel that those two objectives are at odds. You can protect the environment and still purchase an NFT, but to avoid using almost 48 days’ worth of electricity, you can’t purchase just any NFT.

If you are committed to aligning your investment portfolio with your stance on climate change, then aim to invest only in NFTs that are generated using the proof-of-stake consensus method. The Ethereum platform completed its transition to proof-of-stake, so environmentally-conscious investors can buy NFTs minted on Ethereum (ETH) with a bit less concern for the environment.

Are Non-fungible Tokens (NFTS) Bad for the Environment?

It’s when a non-fungible token (NFT) is minted at an NFT marketplace using an energy-intensive method, such as proof-of-work, that the environment can experience an impact, such as an increased carbon footprint. Conversely, NFTs minted using a proof-of-stake blockchain have a significantly reduced environmental impact.

How Much Energy Do NFTs Use?

Minting an NFT on the Ethereum platform uses less than 0.03 kilowatt-hours of electricity—about three hours of watching YouTube. Minting one on a proof-of-work blockchain uses the same amount of electricity a U.S. household uses in 47.4 days.

Can Environmental, Social, and Governance (Esg) Investors Buy NFTs?