Crypto in its current format has a considerable impact on the environment. Since NFTs rely on them — artists, marketplaces and blockchains are already making progress towards reducing the environmental impact of NFTs.
Non-fungible tokens, or NFTs are becoming increasingly well known for the benefits they offer artists and art collectors. They rely on blockchain platforms to buy and sell work. These blockchain platforms in their current format are extremely energy intensive. But fortunately, progress is already being made to change that. We take a look at the environmental impact of cryptocurrency and NFTs and what’s being done to solve it.
Is cryptocurrency inherently bad for the environment?
To answer this question, it’s important to understand the fundamentals of the currency used to buy and sell NFTs; cryptocurrency.
Cryptocurrencies like Ethereum and Bitcoin require ‘mining’ to create. If everyone was able to mine as much currency as they wanted — the value would drop dramatically, taking the market down along with it.
The mining process is therefore a purposefully difficult, slow, and intensive one. A user must first show ‘proof of work’ to earn their rewards or currency. This process involves complex puzzle-solving by specialised computers that require a huge amount of energy. When a user completes a set of puzzles, they can add the ‘block’ that they mined to a decentralised ledger (known as a blockchain) and be rewarded with cryptocurrency.
The electricity used during this process is considerable. Ethereum alone for example, uses as much electricity in one year as the entire Netherlands.
With many countries doubling down on their efforts to transition to renewable energy, crypto is unsurprisingly looked upon as both unacceptable and unsustainable.
Why are NFTs considered bad for the environment?
NFTs make all transactions through the same blockchain that cryptocurrencies are built upon. They’re also bought, sold and paid for to be minted with crypto.
Since NFTs are tied to cryptocurrency, everytime someone makes and sells NFT art, or transfers ownership of an NFT, it uses the same energy-hungry computer transactions of cryptocurrencies. Adding to that, most crypto miners opt for cheaper energy sources like fossil fuels, rather than more costly but cleaner renewables.
In their current format, NFTs aren’t great for the environment but fortunately, this is starting to change.
What’s being done to reduce the carbon footprint of NFTs?
Since NFTs have boomed, the spotlight has been cast on Ethereum where most NFTs are bought and sold. As a result of this pressure, Ethereum announced an upgrade called “The Merge” in 2022 that promises to cut the network’s energy consumption by up to 99%.
Other blockchains like Voice are also working on solutions to reduce the impact of crypto and NFTs. Voice is carbon neutral and use their own less energy intensive blockchain platform. They pick data centres that rely heavily on clean energy and also offset emissions they produce to retain carbon neutral credibility.
Marketplaces are making similar shifts towards lessening their impact by offsetting carbon emissions, or even going beyond that to regenerate further than the impact they create.
“Ethereum announced an upgrade called “The Merge” in 2022 that promises to cut the network’s energy consumption by up to 99%.”
How can we improve the carbon footprint of NFTs?
A key strategy to make NFTs less energy-hungry is reducing the number of transactions on the blockchain. Creators can wait to mint their NFTs until the actual sale rather than beforehand and auctions can be held ‘off-chain’ before being submitted to the blockchain in groups, to reduce the number of submissions. NFTs can even be minted on other platforms and moved to Ethereum when they’re ready for sale. Even though it may mean slightly less exposure of value to their work, some artists are choosing the more environmentally friendly option anyway. Artists like ‘Beeple’ for example, purchase carbon credits to offset the emissions that occur through their blockchain transactions.
How marketplaces reducing their footprint
There are so many creative and innovative solutions emerging to combat the crypto-energy problem. CurrencyWorks, a tech company based in Canada have created an advanced system that converts waste into energy to power crypto mining machines.
They’re already powering the distribution of a 2021 film titled Zero Contact featuring Anthony Hopkins. The film was minted and sold as a limited edition NFT, making it a unique director-to-consumer film that made history and also highlighted the ability of NFTs to have a zero-carbon footprint using CurrencyWorks’ power source.