Sustainability made simple

The Hidden Costs of Virtual Art: Analyzing the Environmental Impact of NFTs

nft environmental impact
Foto: CC0 / Pixabay / PIRO4D

In 2021, Bitcoin consumed more energy than the whole of Argentina. Discover the ecological price of virtual art and how we can navigate its future sustainably.

You’ve likely heard the noise surrounding cryptocurrency, blockchains and NFTs (non-fungible tokens). These developments in the cyberverse have blown up, gaining both positive and negative attention. If you’re someone who considers environmental angles, you’ve also probably heard that cryptocurrency and NFTs can have a surprisingly negative environmental impact.

Bitcoin — the most valuable and well-known cryptocurrency — uses more energy than entire countries. In 2021, for example, Bitcoin consumed more energy than Argentina. This is important when considering the environmental impacts of NFTs because their sales are made using cryptocurrencies on various platforms.

Before we delve further into this topic, we need a basic breakdown of what some of these concepts are. Read on to learn more about NFTs’ environmental impact.

What Are NFTs, Anyway?

NFTs are an entirely new domain for the art world finally allowing it to establish its own place in cyberspace.
NFTs are an entirely new domain for the art world finally allowing it to establish its own place in cyberspace. (Foto: CC0 / Pixabay / alan9187)

Non-fungible tokens (NFTs), once considered the new gold rush, gained popularity a few years ago when celebrities and artists were cashing in on digital art. The concept of NFTs essentially refers to the ownership of a digital file. Often NFTs are crypto (digital) art. The “nonfungible” element of NFT means that whatever file it is, it cannot be replaced.

Money can be used to represent a fungible item. For example, a $100 bill can be replaced by various forms of capital, such as five $20 bills, another $100 bill, money deposited in your bank account, and so on. All forms are worth the same amount and can be used in the same ways. This model can be applied to stocks, gold, and other forms of capital that are equivalent and interchangeable.

NFTs are like special edition copies of digital files that include copyright and ownership. Another example is the metaphor of a special edition book or album, where only a specific number has been produced, so just a select number of people can pay to own them. That’s where celebrities and artists start cashing in — most of whom don’t stop to consider their NFTs’ environmental impact.

In 2021, Grimes made millions of dollars from some of her own art. In the same year, Nyan Cat, a famed NFT created by Chris Torres, featuring a running pop-tart cat shooting rainbows from its backside, sold for $600,000. For many, NFTs symbolize a generational shift in art culture that fuses art, capitalism and the unstoppable digital vortex.

Yet many have been asking: if the point of NFTs was to create something radically different, why aren’t NFTs’ high energy requirements and CO2 emissions bigger priorities? In an increasingly eco-conscious world, the environmental impact of NFTs should be front and center.

NFTs and Environmental Impact: Consensus Mechanisms

Cryptocurrency is foundational for the sales of NFTs and more, so as long as cryptocurrencies and blockchains require high levels of energy and contribute to fossil fuel emissions, NFTs will be responsible for harming the environment.
Cryptocurrency is foundational for the sales of NFTs and more, so as long as cryptocurrencies and blockchains require high levels of energy and contribute to fossil fuel emissions, NFTs will be responsible for harming the environment. (Foto: CC0 / Pixabay / spirit111)

Another controversial aspect of NFTs is that people are paying hundreds of thousands and even millions of dollars for digital artworks even though it’s possible to obtain the files with a simple right-click, screenshot or video recording. Many copycats are also replicating art for financial rewards.

However, the point of NFTs is that they’re designed to give the buyer ownership of the work, which is something that can’t be reproduced. This has many people asking: are NFTs a rip-off?

To reassure everyone involved, the sale and verification of NFT ownership are conducted via blockchain. In the crypto world, NFTs record ownership of digital files using blockchains, which essentially exist to verify and track ownership and sales by providing digital receipts, facilitating the sales of NFTs with validation, certifying authenticity, recording ownership and more.

Most NFTs sales have, since their beginning, relied on proof-of-work (PoW) blockchains, which are infamous for requiring large swaths of energy. PoW is a consensus mechanism used by cryptocurrencies like Bitcoin and many other platforms. It involves a web of computers to guess the next number in an equation to produce the next block in the blockchain. Cryptocurrency is the reward given to the machine or owner for doing so.

This mechanism requires significant energy. Miners, as they’re referred to, use energy-intensive computers to generate as many guesses for the blockchain as possible as quickly as possible. There are many of these powerful machines worldwide connecting to the network and trying to calculate the next block and collect cryptocurrency.

The Transition to Proof-of-Stake

Now that Ethereum has massively reduced its energy use, NFTs' environmental impact may have a better future.
Now that Ethereum has massively reduced its energy use, NFTs’ environmental impact may have a better future. (Foto: CC0 / Pixabay / sergeitokmakov)

Proof-of-stake (PoS) is the latest consensus mechanism in blockchain technology, and many platforms are already using it. Before September 2022, Ethereum (a decentralized, open-source blockchain) used energy-intensive PoW technology — but it has since switched to PoS, where a processor is randomly chosen. This contrasts with PoW, in which millions of computers are used simultaneously. It uses a different algorithm and has reduced its energy consumption by 99.6%.

For most of their existence, NFTs have been unsustainable mainly because they require an energy-intensive PoW mechanism for their sales. According to the Ethereum Energy Consumption Index, Ethereum was responsible for producing 47.8 metric tons of carbon every year. That’s comparable to the annual carbon footprint of Norway.

Due to the PoW consensus mechanism that Ethereum has relied upon for so long and its status as the most popular cryptocurrency for NFT sales, NFTs are likely contributing to more complex energy consumption than previously thought. This is due to factors like resales, online bidding and multiple editions — in addition to general sales.

Despite Ethereum’s transfer to PoS, many worry that this effort hasn’t made enough difference to fossil fuel emissions caused by cryptocurrencies. There is skepticism that the machines used to mine Ethereum have been repurposed to mine other cryptocurrencies that use PoW, specifically Bitcoin. But “The Merge,” as this transition is called, is still a hopeful sign for the future of sustainable cryptocurrency and NFTs’ environmental impact.

The bottom line: PoS is much less energy-intensive than PoW because it doesn’t require miners to compete against one another. Instead, PoS randomly selects the next block in the blockchain.

Bitcoin

While Bitcoins can be used for the sale of some NFTs, most buyers and sellers use alternative platforms, the majority of which now have a gentler environmental impact.
While Bitcoins can be used for the sale of some NFTs, most buyers and sellers use alternative platforms, the majority of which now have a gentler environmental impact. (Foto: CC0 / Pixabay / MichaelWuensch)

Bitcoin, the most popular and valuable cryptocurrency, still uses PoW. Calculating this platform’s substantial fossil fuel emissions has proven challenging, as it requires knowing the exact energy needed to power the Bitcoin network. So, the location of its miners is key to defining the type and amount of power being used.

While estimates of its energy consumption vary, current calculations suggest that the Bitcoin network may have exceeded 13 GW in 2021 and has a carbon footprint greater than 65 megatons of CO2. This estimate makes Bitcoin responsible for .5% of all global electrical energy consumption. Other cryptocurrencies contribute another 50% to Bitcoin’s already massive energy consumption.

Due to the heavy reliance on mining, which attracts many to try to crack the next block in the blockchain and requires energy-intensive machines, Bitcoin is a significant consumer of energy. If it were a country, it would rank 38th globally for energy consumption — after Chile and ahead of Finland.

While Bitcoin’s impact on global emissions is a serious concern, it’s not particularly relevant to NFTs because it’s not commonly used for their sale.

Tip: If you’re interested in buying or selling NFTs, avoid bitcoin and look for platforms with lower CO2 emissions that use PoS instead of PoW.

Quantifying the Environmental Impact of NFTs

NFTs can be more or less environmentally harmful depending on how they're mined and sold.
NFTs can be more or less environmentally harmful depending on how they’re mined and sold. (Foto: CC0 / Pixabay / Luminas_Art)

A fair understanding of NFT’s environmental impact has always been challenging. These processes are relatively new, and experts haven’t thoroughly reviewed the analytics. Before Ethereum’s shift from PoW to PoS technology, NFTs were responsible for large greenhouse gas emissions. Though crypto art relies on many platforms, Ethereum remains the most important NFT blockchain because it hosts some of the most popular NFT marketplaces, like OpenSea, Bored Ape Yacht Club and Crypto Punks. It also provides all services required for NFT sales without needing third-party services.

Furthermore, Ethereum was one of the last cryptocurrencies (used for NFTs) to switch from PoW to PoS. Others, like Solana, Cardano, BNB and Tezos, were already using PoS blockchains or something similar. So, most cryptocurrencies used for NFTs now no longer use the energy-intensive PoW mechanism.

Tezos, the second-most popular blockchain for NFTs, is considered a green alternative to other, more energy-intensive blockchains. Solana, meanwhile, carbon neutral since 2021, runs on PoS and offsets its – already low – carbon emissions. One study estimates that a single transaction on Solana uses around 1,939 joules, equivalent to the energy required to complete two Google searches.

While concerns about the sustainability of NFTs are justified, it’s also worth considering how the emissions from cryptocurrencies and NFTs compare to the energy consumption of the traditional art world. Many argue that NFTs are a better alternative when considering the energy used for flights, shipping materials and artworks, installations, and the resources required to maintain a gallery or studio.

While NFTs’ environmental impact during their PoW era has been substantial, crypto-art seems to be headed toward a more sustainable future.

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