Non-fungible tokens (or NFTs) are the newest players in the cryptocurrency market, and their environmental impact may surprise you.
What’s an NFT?
Let me start by saying, I’m not a tech writer. I’m a sustainability writer. So, I’ll explain the best I can with the knowledge and tools I have.
At this point, you’ve probably heard about blockchain and cryptocurrencies like Bitcoin. Ethereum is another cryptocurrency, and NFTs are part of its blockchain. In contrast to how Bitcoin, for example, can be traded like regular money, NFTs are assigned a unique ‘token’ that verifies one particular owner. It’s a little like the title of a car that shows the owner and the VIN of the vehicle. NFTs are non-fungible, which means they can’t be easily exchanged for a similar good in the way a bitcoin can be traded for another bitcoin. In this sense, it’s much like tangible art. If you own an original Rembrandt, you have unique ownership of the one-of-a-kind artwork.
If you’ve seen recent headlines, digital artworks are the hot NFTs we’re talking about here. For example, according to Christie’s Auction House, “EVERYDAYS: THE FIRST 5000 DAYS” by Beeple is the first purely digital work of art ever offered by a major auction house. It sold for $69.3 million. There are several other over-the-top examples of high-selling art in the digital realm. The bustling industry has flung open the door for emerging and established artists as another way to promote their work, especially when presented with the challenges of the pandemic.
So where does energy consumption come in?
To get a sense of NFTs’ energy consumption, you’ll have to understand the process of how they’re bought and sold. Here’s a simplified version of how it all works.
Let’s pretend you create a digital image of Snoopy dancing in the rain with an umbrella. To find your audience, you’ll need to get your work onto an online marketplace like OpenSea. Most of these sites use Ethereum, which verifies transactions through ‘mining.’ When an NFT is purchased, miners must compete to solve a block that results in your Snoopy artwork being the uniquely identifiable NFT the buyer wants. Miners are motivated to compete because the single person who solves the block first gets a commission for their work. All others who competed are out of luck, even though they consumed a huge amount of energy in their efforts.
How much energy?
So, how much energy does this take? By current estimations, a single Ethereum transaction consumes 48.14 kWh. For comparison, that’s just over one and a half days of energy consumption within the standard U.S. household. Now, multiply that by thousands of transactions daily and you can see how NFTs’ energy consumption takes its toll.
There are a few things to keep in mind here. As far as production and sales go, a single Ethereum transaction to purchase an NFT consumes less energy than making a t-shirt. Also, NFTs aren’t the only goods bought with Ethereum, so even if the art went elsewhere, there would still be transactions eating up energy.
What may be more important to focus on is the impact of cryptocurrency in general. Some stats on Brightly.eco help bring this into focus explaining, “Bitcoin ‘mining’ already generates 38 million tons of CO2 per year, more than the carbon footprint of Slovakia.” Put in other terms, “The daily carbon footprint of Bitcoin is the equivalent of watching 57,000 hours of YouTube videos. And, its daily electricity usage is equivalent to the amount of power an average American household uses over the course of 25 days.”
Shidan Gouran, co-founder of Gulf Pearl, a merchant bank in the blockchain sector, said one cryptocurrency transaction uses as much energy as more than 700,000 Visa transactions. To further illustrate his point, Gouran says, “Even if you take away carbon emissions, if we move Visa to the same system as Bitcoin, you would still heat the planet up by more than one-and-a-half degrees. Just the heat that the system would create would be unsustainable.”
Possible changes ahead
Now, here’s an important tidbit I skipped over earlier. The reason all the miners are competing for each transaction has to do with the way the system is set up. Currently, the ETH blockchain uses the competition-based “Proof of Work (PoW)” system, as explained above. But, there’s chatter about a move to a different system called, “Proof of Stake (PoS).” This system would randomly choose one person to solve the block, eliminating the competition and the copious energy consumed in the process. The result would be a 99% reduction in energy consumed. Some are saying this new system could be implemented later this year or in 2022. There’s also the option to use a different chain besides Ethereum, then pick it back up when it’s moved to the PoS system. Furthermore, as more sources report on this energy consumption issue, some outlets are beginning to offer carbon offsets with each sale or purchase.
Via Brightly.eco, Loopify and Wired
Images via Adobe Stock and Wikimedia Commons