Despite still being in their infancy, non-fungible tokens (NFTs) have already helped a variety of people accomplish amazing things. The blockchain-based technology has given artists a new way to create and sell their work, allowed researchers to raise money for scientific institutions, and even aided Ukrainians during the Russian invasion (in a number of ways, in fact).
NFTs are also at the center of a rather serious controversy regarding climate change and the environment.
Specifically, some allege that NFTs increase the already exorbitant carbon footprint of blockchains like Bitcoin and, as a result, significantly contribute to an already worrying climate crisis. The criticisms are often searing.
Unfortunately, much of this searing criticism is exaggerated and conflates hype with the truth. Granted, the issue is a hugely important one. But we need to separate fact from fiction and clear the air on the debate surrounding NFTs and their environmental footprint.
Following the real-world data on NFTs’ environmental toll, a far more interesting (and even inspiring) picture emerges, if you can believe it.
How do NFTs impact the environment?
Blockchain technology is helping usher in a new iteration of the internet, which is widely referred to as Web3. One of blockchain’s key advantages is that it can help decentralize the web. How? By enabling data to be stored and managed by a democratic network of users, as opposed to a few giant intermediaries who control everything according to opaque rules they themselves set.
Rather than relying on a single centralized source, Web3 is built on top of blockchain-powered crypto networks that enable data to be stored across distributed devices (also known as “nodes”) worldwide. In this respect, it makes sense to think of the blockchain as a shared digital collection of data transactions, i.e., a public ledger.
The individual transaction records are stored in blocks that link together to form a chain of bookkeeping (hence the name “blockchain”). The core principle at work here is that users in the system — not third parties like banks or Big Tech companies — validate the transactions that happen within the system. This occurs via consensus. In order for a block and the data transactions it contains to be added, the majority of computers (nodes) in the network have to agree on the block’s validity.
Accomplishing this requires a complex system, which involves users in the network performing two distinct functions. Using special software, some users validate that a transaction has been requested and is authentic. Other computers in the network perform a far more difficult (and energy-intensive) computation to establish network consensus and add the next block, something known as “mining.” To do this, nodes in the network — which are often giant mining servers — must solve complex mathematical problems rooted in cryptographic algorithms.
This process is known as Proof-of-Work (PoW) validation. Notably, achieving network consensus this way is energy-intensive by design. The idea is that requiring a resource-heavy computing process just to try to mess with the ledger will disincentivize people from doing so.
In short, demanding excessive amounts of energy is a fundamental part of how PoW blockchains work.
What’s more, miners are generally incentivized to perform the mining with rewards that often take the form of small amounts of cryptocurrency. This has the double effect of making the blockchain even more secure. The more nodes in the network trying to verify blocks, the harder it is for a malicious actor to take over the majority of nodes in the system, which is something that would allow them to rewrite the ledger.
What all of this means is that, in a blockchain that uses PoW consensus, the more secure it is, the greater its energy consumption.
When someone creates an NFT, sells an NFT, or buys an NFT, they are making a transaction on the blockchain. As described above, these transactions need to be validated and added to a block, which requires energy. In this respect, some argue that NFTs can harm the environment through their energy demands.
How much energy do blockchains and NFTs use?
To be clear, the energy consumption of large blockchains is massive in scale. When looking at the combined energy usage of Bitcoin and Ethereum (before the historic Ethereum merge of September 2022, which we discuss below), the two consumed over 317 TWh of energy annually, putting the chains somewhere between Italy and the United Kingdom in terms of electrical energy consumed. The amount of energy Bitcoin uses is so great that the University of Cambridge has even created a Bitcoin Electricity Consumption Index, which presents the figures in several interesting ways.
Those are numbers worth appreciating. And if NFTs rely on this infrastructure, it’s not unreasonable to assume that they would have a massive impact on the environment. However, these numbers mean little without context.
To begin with, numerous global industries consume more energy than whole countries. Blockchain is far from unique in this regard. In fact, Bitcoin is the largest blockchain in the world — it’s leagues beyond other blockchains in terms of its energy requirements. However, even Bitcoin’s energy needs rank near the lower end of relatively small mining industries like copper and zinc. If you need further comparisons, Bitcoin’s total annual energy consumption is less than what the world’s residential air conditioning units require. It’s also lower than the energy needs of the world’s data centers like Apple, Google, and Amazon.
Of course, this doesn’t mean that blockchain and NFTs have no impact on the environment. However, once you stop to consider things in their proper context, the stark moralistic tones used by those who condemn NFTs do seem less justified.
And then there is the issue of inconsistent optics.
In general, when we think of the energy requirements of the various technologies we use, we frame things in specific, localized ways. How much gas did we use to fill our car last month? How much electricity do we use to power our home for a day? We don’t tend to think of how much gas every car uses or how much energy every house uses. And we use relatively small time frames when considering each.
Oddly, there is a tendency to do the opposite with blockchain. Rather than consider the tech’s energy consumption on a localized scale, people say “Bitcoin uses this much energy per year.” And the huge numbers cause people to recoil with horror.
However, viewing things this way ultimately leaves one with an unfair and biased view of NFTs, as blockchain is used for much more than NFTs. To truly understand the relationship between NFTs and the environment, we can’t use the numbers as related to an entirety of a blockchain. We need to determine how much energy an NFT transaction uses.
Unfortunately, this is easier said than done. It’s true that researchers have attempted to contextualize the impact of individual blockchain and NFT transactions in the past, producing well-meaning but misguided studies that claim to look at the amount of energy needed to power a single transaction on Bitcoin, for example. However, these findings are deeply problematic.
Last fall, Juan Ignacio Ibanez, a researcher at University College London’s Centre for Blockchain Technologies, published a report with colleagues entitled “Energy Footprint of Blockchain Consensus Mechanisms Beyond Proof of Work.” It’s the only comparative study of the energy consumption of various blockchains of its kind. In an interview with nft now, Juan outlined the issues with previous studies.
“You may have heard that, to send a Bitcoin transaction, you need to spend as much energy as is needed to power a medium-sized house for three months. These are imperfect analogies because, in reality, Bitcoin is not mining transactions,” Juan explained. “They’re mining blocks. Blocks have many transactions inside them. If a block is not full, every extra transaction you add costs you nothing in terms of energy,” he elaborated.
In short, this means that previous arguments often equated one NFT transaction with creating an entire block on the blockchain. That’s simply not how things work.
Miners will continue their work even if there are zero transactions to record in a block, as they are incentivized to do so via the aforementioned crypto payments. So the ecological cost of zero NFT transactions, ten, and an entire block’s worth of NFT transactions is exactly the same. Thanks to the work of researchers like Juan and his colleagues, we’re finally starting to understand whether NFT transactions add anything of significance to the carbon footprint of the blockchain systems they’re a part of. We don’t have hard figures, but we do know that previous work has overstated the issues to a dramatic degree.
However, before you yell at NFT artists for incentivizing blockchain mining, it’s worth knowing that oil behemoth BP is the one who introduced the idea of an individual carbon footprint. Why? Because they wanted to shift the blame for the environmental catastrophe onto consumers. So when you criticize NFT artists for harming the environment, know that you are playing into Big Oil’s hand. And if you still feel justified in criticizing NFT artists for environmental reasons, then consider what you’d suggest as a better alternative. Should artists go back to selling their art on t-shirts? Because according to Ngan Le at Princeton, “the fashion industry is currently responsible for more annual carbon emissions than all international flights and maritime shipping combined.”
That’s not exactly a better alternative.
Proof-of-Stake: Reducing NFTs’ impact on the environment
So far, we have established that NFT transactions cost some energy and, as a result, can negatively impact the environment. But here’s the thing: They don’t have to.
In the study, Juan and his colleagues attempted to lay out the bigger picture of various blockchains’ energy consumption and determine which have higher and lower carbon footprints and why. Specifically, the research compared leading blockchains running on PoW with those running on Proof-of-Stake (PoS). The results were illuminating, revealing that PoS is an alternative that requires orders of magnitude less energy to operate.
PoS significantly lowers the amount of computation required to validate blocks and keep the blockchain secure by making users stake an amount of their cryptocurrency for the chance to be randomly chosen as a block validator. This selection process eliminates the need for nodes (servers) in the system to compete with one another to solve those highly complex mathematical problems, show their proof of work, and add the following block to the chain.
No complex calculations, no obscene energy consumption.
How Ethereum’s merge reduced its energy consumption by 99.5 percent
This is significant as it shows that blockchain has the potential to evolve in positive ways. In fact, Ethereum, the second largest blockchain in the world, already has. After years of research and careful preparation, the chain officially migrated to PoS consensus on September 14, 2022. The numbers are still coming in, but Ethereum developers and independent experts expect the blockchain’s energy consumption to drop by at least a staggering 99.95 percent.
Calaxy is an online marketplace that uses cryptocurrencies unique to the content creators on their platform. It’s built on Hedera Hashgraph, a blockchain whose energy consumption was ranked the lowest in UCL’s study. In an email exchange with nft now, Cooper Kunz, CTO at Calaxy, explained why it took years for Ethereum to migrate to proof-of-stake consensus.
“Consensus migration is one of the most difficult, novel, and impressive feats of engineering I think the world has ever seen,” Kunz explained. “It makes sense that it [took]longer than expected.”
So to say that blockchain is an environmental disaster is to ignore that the failings of those systems are already undergoing a change. It ignores the fact that the teams behind these systems are already working hard on improvements to make things better. Can the same be said about other industries? Again, this isn’t to say that blockchain and NFTs are harmless and have no impact on the environment. But it does call into question the legitimacy of the harsh condemnations brought against them.
Fun fact: You can already buy energy-efficient NFTs
Ethereum gets mentioned a lot in this conversation — that’s because Ethereum is the world’s most popular blockchain when it comes to NFTs. But it’s far from the only place to trade.
For example, there’s Solana. Its unique combination of proof-of-history (PoH) and PoS consensus mechanisms lead to substantially reduced validation times and energy use. The blockchain also supports a variety of popular NFT marketplaces like Magic Eden and Solanart.
If you’re looking for an even greener alternative, consider the Tezos blockchain. Tezos rose to popularity towards the beginning of 2021, and its Liquid Proof-of-Stake (LPoS) mechanism uses about two million times less energy than Ethereum (pre-merge). One of the most popular NFT marketplaces on Tezos is Rarible, which also supports the creation of NFTs.
There’s also Aorist on Algorand and Galaxy of Art and CNFT on Cardano. So if you want to support NFT artists and blockchains that are already optimized for minimal energy use, you have several options.
NFTs and gas fees: Proof of a problem?
Occasionally, critics will point to something called a “gas fee” that accompanies NFT transactions on Ethereum as evidence of adding to the environmental harm blockchains cause. Gas fees are the ironically-named fees sent to miners in the Ethereum blockchain as a reward for validating blocks. They can be thought of as an indirect measure of the computational power needed to perform a transaction that end-users foot the bill for.
Because NFT transactions include smart contracts and are more computationally intensive than other transactions, their gas fee is usually higher than others.
“There are some more complex and less complex transactions, which is why, on Ethereum, you have this gas fee,” Jiahua Xu, a researcher at UCL’s Centre for Blockchain Technologies and co-author of its energy study, said in an interview with nft now. “If you’re interacting with a smart contract — and an NFT is a smart contract — if there are very complex calculations involved, you’ll need to pay a bit more, and that’s reflected in the gas cost,” she explained.
However, it’s important to note that this doesn’t necessarily correlate to higher energy expenditure. As such, using it as a metric to point to NFTs’ environmental impact makes little sense.
How blockchains can contribute to the fight against climate change
Taking all of this into consideration, what emerges is a far less dire situation than most portray. NFTs themselves are not causing significant harm to the environment — it’s the blockchains they are a part of that have considerable energy needs. As such, the blockchains need to change, not NFTs. Fortunately, as described above, they already are.
Moreover, some PoS ledgers, like Hedera, go beyond carbon neutrality and achieve a carbon-negative impact overall. They can do this by using a low-energy PoS consensus from the outset and then trading in carbon offsets to get them the rest of the way.
Carbon offsets widely refer to a reduction in greenhouse gas emissions or a rise in carbon-storing capabilities (through reforestation, for example) that compensate for emissions that occur somewhere else. The buying, selling, and trading of these carbon offset credits is an effective way to both combat climate change and encourage the development of renewable energy tech.
Fascinatingly, one of the potential applications of blockchain technology could be creating a transparent and accurate carbon trading market. Existing carbon markets can be a bit complicated, as carbon credits are non-fungible, and the market values them differently depending on a number of factors. There is also the problem of keeping track of them.
“These principles of decentralized finance can be used to create a market for these carbon offsets that are not fungible,” explains Juan. “You need to come up with a way to price the difference between them and to create a single market for them where they can be traded for each other. To achieve this, you can use automated market makers with blockchain. So, blockchain can even create markets to exchange carbon offsets, or credits, where it wasn’t possible before. If you can’t trade them, you have no incentive to sink the carbon in the first place,” he said.
Yes, blockchain has its problems. But these are encouraging and necessary developments. They show that blockchain also has the galvanizing potential to do a fair amount of good in the world. Once we acknowledge that context, far more relevant and interesting questions about blockchain and even NFTs emerge regarding what we do with them: Just how bad is one activity compared to another? How vital do we believe the activity is to our thriving as a species? How instrumental is it to living a meaningful and dignified existence?
Too often, we don’t even consider such questions in the context of the technologies we already use and take for granted, largely giving them and their environmental impact a pass. We can and should do better. Blockchain offers us an opportunity to reevaluate our priorities and think about the conversations we want to have going forward. Many in the blockchain world share this sentiment.
“The intrinsic cultural value of NFTs has been overlooked, and I believe it is worth pursuing for the sake of our collective future,” Witek Radomski, co-founder, and CTO of Enjin, a company that uses Polkadot blockchain to power its NFT space, explained in an email exchange with nft now. “With so many Web 3.0 players and networks aiming to secure carbon neutrality, it is only a matter of time before a complete migration from Web 2.0 takes place, underpinning a net positive impact on our environment,” he continued.
NFTs are a great way to empower creatives around the globe, raise money for noble causes, and do so much more. They carry with them fascinating discussions about how our psychologies work and how society creates value. They reaffirm the idea that art isn’t an “extra” in human culture. We can do better than letting misconceptions surrounding the technology they are built on detract from those conversations.