How Bad Are NFTs for The Environment?

Since its inception in 2015/2016 and a subsequent boom in 2020/2021, the NFT space has overseen the sale of thousands of digital artworks for billions of dollars. However, a source of major concern has been the NFT environmental impact, given that more conscious efforts now go into protecting the current environment. 

What Are NFTs?

NFTs, short for Non-Fungible Tokens, are digital artworks with unique qualities — they aren’t interchangeable with one another, ergo the term Non-Fungible. 

In contrast, Fungible tokens are exchangeable for tokens of similar properties — the dollar bill is an example. A hundred dollar bill has the same quality and value as another hundred dollar bill — hence they are exchangeable. 

Are NFTs Bad for The Environment?

NFTs’ environmental impact stems from the blockchain and cryptocurrencies behind them. Most NFTs use the Ethereum blockchain as their backbone infrastructure — thus, they become culpable or otherwise on the impact of the Ethereum blockchain on the environment. 

Transaction confirmation on the Ethereum blockchain, just like with Bitcoin, is based on the Proof-of-Work system. The Proof-of-Work system is a high-energy consuming transaction confirmation system on the Ethereum blockchain. It involves solving complex mathematical problems by miners, and its consequence is a vast NFT carbon footprint.

Due to the complexity of these problems, powerful computers process random computations within a short time, thereby consuming enormous amounts of energy. These miners, on the other hand, rely on cheap energy sources like coal and fossil fuels which are harmful to the environment. 

So, going by this logic, are NFTs harmful to the environment? Yes, if they are backed by a Proof-of-Work-based blockchain. 

Understanding Consensus: Proof of Work & Proof of Stake

Proof-of-Stake, in contrast to Proof-of-Work, is more energy-efficient and makes it easier to verify and add new transaction blocks to the blockchain. 

The Proof-of-Stake System, instead of solving complex computations, allows miners to stake their coins for a task or verify a transaction on the blockchain, thereby saving energy. Miners earn their staked coins and reward after transaction confirmation. 

Miners are picked randomly in the PoS system, a complete contrast to PoW, where miners compete for transactions.

On security, fraud becomes unappealing as validators stand to lose their staked coins in the event of any underhand dealing. 

Ethereum 2.0 Environmental Impact

Ethereum 2.0 first launched in November 2020. With this new Ethereum, transactions become more efficient and environmentally friendly. It utilizes the Proof-of-Stake System. 

Transaction validation on Ethereum 2.0 consumes significantly less energy than Ethereum, up 99.9%. Ethereum 2.0 required only 524,000 ETH to launch. However, miners have oversubscribed by over 400%, staking over 10 million ETH. A show of preparedness for the launch of the efficient and eco-friendly Ethereum. 

Alternatives to Ethereum

Ethereum may be the dominant blockchain in the NFT space; nonetheless, other blockchains are mostly far more energy-efficient than Ethereum. 

Solana, Carano, Zilika, Tezos, Flow already use the PoS and are alternatives to Ethereum. These blockchains were mostly built specifically as viable alternatives to the Ethereum blockchain; however, some have a few setbacks. Flow, for example, is a centralized system that completely defeats the purpose of cryptocurrencies – which is decentralization. 

NFTs For A Sustainable Future

It’s a broad consensus that things have to change for the sustainability of the blockchain and the environment. There are some viable ways this is achievable. 

• Using Green Energy Resources for Mining

Miners use cheap, harmful energy resources for mining; these are replaceable with green energy sources like wind, solar, and to some extent, natural gas. These will drastically reduce emissions from mining operations and, subsequently, NFT environmental impact. 

• Moving to the Proof-of-Stake System

Moving to the Proof-of-Stake System is a no-brainer. Aside from being more environmentally friendly, it’s also more efficient for blockchain transactions. A few Ethereum alternatives already use the PoS system; nevertheless, the impact is minimal as their combined share of NFT transactions is easily trumped by Ethereum. Without a doubt, it’s a massive relief that Ethereum already has concrete plans to move to the PoS system. 

• Batching Transactions

Batching transactions involves adding another layer to a blockchain transaction outside the blockchain. The blockchain sides of the accumulated transactions are then processed in a single batch. NFT marketplaces can utilize this type of transaction processing, saving a significant amount of energy from individual transaction processing.