Are NFTs bad for the environment?
Something that is getting a lot of attention in recent months is NFTs. Ranging from professional artists to small YouTubers, it seems everyone wants to get involved in this new trend. As I write this, the most expensive NFT has sold for $69.3 million. To the average person it may seem confusing. You may be thinking: What even is an NFT? Is it something I should get involved in? Are NFTs really bad for the environment? In this post I’m going to try and remove the jargon and try to provide some background on this new topic.
What are NFTs?
The term stands for “Non-fungible token”, though that doesn’t exactly clarify what one is! 🙂 It is basically a certificate which says you are the original owner of a physical or digital good. Let’s use the example of digital art. With regular image files they can be copied and sent freely. There is no proof of who the original owner is. Everyone has the exact same file. This is different to physical art, where one person normally owns the original artwork and other people have replicas of it. In the case of physical art, there is a distinct owner who can proudly say they own the original artwork.
NFTs can be used to bridge this divide between digital and physical art. It is a certificate which is held by an individual to say that they “own” something, such as a digital piece of artwork. This can be checked by others to verify. As a result, it is possible for someone to own the rights to digital art, whilst everyone else would be considered to have replicas. NFTs can also be transferred and sold.
They aren’t just used for artwork though. In theory, NFTs can be used for any kind of good. Trading card companies can sell NFTs so that someone can “own” an original trading card. There are YouTubers who sell NFTs for their YouTube videos, so that a viewer can “own” the certificate for the video. This is where the value of NFTs become less clear. These people may own an original certificate for YouTube videos, but they don’t actually own the content itself and have no rights over the use of it or any of its profits. It has very little underlying value in this case, other than a new form of collector’s item.
How do they work?
Now that you have a general idea of what an NFT is, I’m going to explain a bit about the technology underneath. The concept uses a technology called blockchain. Data (such as who owns an NFT) is gathered together into a “block” which is then added to the end of the chain (like the image above). The blocks cannot be altered afterwards, which means there is a clear history of all of the transactions for the creation and buying/selling of the NFT. In addition, anyone can view the contents of the blockchain. It is often decentralized (meaning that no individual entity owns it). This technology is what powers cryptocurrencies such as Bitcoin. It is useful for NFTs as it ensures full transparency of who owns an NFT.
Whenever an NFT is created, information about the NFT needs to be added to a block on this blockchain. When someone makes a bid on an NFT, this also needs to be part of a block. Transferring to a new owner also needs to be part of a block. This is where the problem comes in. To add new blocks to the end of the chain, complex mathematical puzzles need to be solved. This was added to make it more difficult for someone to add incorrect blocks to the chain. These puzzles can be solved by anyone’s computer, to ensure that no single entity has full control over the system. These puzzles are often solved by the computer of someone who isn’t directly involved in the transactions in the block. They are rewarded with a small amount of cryptocurrency for doing so. People who solve these puzzles are called “miners”. They are critical to the system, because without them it wouldn’t be possible to create or transfer NFTs. These mathematical puzzles are where the environmental costs come in.
Are NFTs bad for the environment?
Since there is a reward for whoever completes the mathematical puzzles first, there is high competition amongst miners. Many people are buying the highest performance computers to try to give themselves an edge over others so that they can solve it first. There is even an entire industry being built around it! Whole data centers are being built with hundreds or thousands of computers all working hard to solve these puzzles.
As you might imagine, all of this computing power results in high electricity usage. In fact, the Ethereum blockchain (the name of the blockchain which is used by NFTs) now uses more electricity than the entire country of Denmark. This is expected to keep growing. As more puzzles are solved, the difficulty of them increases which means more electricity is needed each time. It should be noted that NFTs aren’t directly responsible for all of this though. The Ethereum blockchain is used for a number of things, of which NFTs are currently a small part. NFTs are just contributing to the bigger problem. The more NFTs there are the higher the carbon emissions will be.
Calculating how high the carbon emissions of a specific NFT are is quite difficult. The creation of the NFT from the original content consumes Ethereum transactions and so does all of the bids and the transfer to a new owner. Each NFT will have a different number of bids and could change hands a number of times, which means each NFT could have a different carbon footprint. There is also some debate on this because an unknown percentage of the electricity use will be coming from renewable sources, depending on where the miners are located and which energy sources they use. Some estimates put the average NFT energy consumption at 340kWh, which approximately equals a 2 hour flight or 620 miles (1,000km) of driving. These figures may be slightly inaccurate, but it’s clear that the emissions are high. It’s up to you to consider whether that level of carbon emissions would be worth it for this kind of collectible.
Conclusion
If you’re wondering whether NFTs are bad for the environment, I think we can conclude that they are in their current state. They are an innovative new collector’s item. It is understandable that people are getting excited about them. I’m not against the concept of them, but I think that the Ethereum community really needs to work on reducing the energy consumption if this is going to be a sustainable hobby. It’s unclear how we’ll be able to meet our environmental goals with such high consumption going to something which isn’t really necessary. There are talks of an “Ethereum 2.0” which would move to a new system with 99% less energy consumption. I think that this upgrade can’t come soon enough.