Chapter 12

NFT Environmental Impact

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NFT Environmental Impact

The criticism is fair. NFTs are at least partially responsible for the millions of tons of planet-heating carbon dioxide emissions generated by the cryptocurrencies used to buy and sell them. Some people (usually those who have already benefited from the craze) think it’s a problem that can be easily solved. Skeptics (those who are usually not in the space) think the proposed solutions are a pipe dream.

Why do NFTs use so much energy? What does the future look like exactly for NFT energy consumption, and more specifically Ethereum environmental impact? Let’s take a closer look.

NFT Energy Consumption

It’s important to note that not all NFT transactions consume the same amount of energy, and most of them are actually quite energy efficient. However, the most popular NFTs are on the Ethereum blockchain, which is not the most energy efficient chain on the market (at least not yet).

Ethereum is built on a system called “proof of work” that is incredibly energy hungry. There’s a fee associated with making a transaction on Ethereum — and, ironically, that fee is called gas.

Proof of work acts as a sort of security system for Ethereum since there is no third party, like a bank, that oversees the transactions. To keep the network (or records) secure, the system forces people (known as “miners”) to solve complex mathematical puzzles using computers that guzzle energy.

Solving these puzzles allows miners to add a new “block” of verified transactions to a decentralized ledger called the blockchain. The miners receive tokens or transaction fees as a reward. The process is incredibly energy inefficient, but it’s also important to recognize that this is intentional. The thinking is that by using up inordinate amounts of electricity, and paying miners a lot, it’s significantly less profitable for them to muck up the ledger. As a result, in some cases Ethereum uses more electricity than an entire country.

The Future of Ethereum

There are alternatives and strategies for keeping a blockchain secure that are more environmentally friendly. The most popular alternative to “proof of work” is a system called “proof of stake”, which requires users to lock up their own cryptocurrency tokens in the network to prove they’ve got a stake in keeping the ledger accurate. If they get caught trying to cheat the system, they will be penalized and will risk losing their tokens. This is in contrast to the use of computing power to solve mathematical problems, and in fact doesn’t need any computers at all, which as a result, gets rid of emissions.

Ethereum has said for many years that it will eventually make the transition to proof of stake, dubbing it’s new protocol ETH 2.0. Crypto enthusiasts cannot wait for this day to come, but it’s been delayed many times already.

Ethereum co-founder Vitalik Buterin admitted that ETH 2.0 is taking a lot longer than expected. “We thought it would take one year to do the proof-of-stake, but it actually takes six years,” he said. Currently, it’s slated for 2022.

Alternatives to Ethereum

As mentioned above, there are other blockchains that exist for NFTs. Flow, which is built by Dapper Labs, is an example of blockchain using a proof of stake protocol. Other ones that exist include Solana, Cardano, Polkadot, and Tezos.

Another solution is to build a new “layer” on top of the existing Ethereum blockchain. Working on this second layer can save energy because transactions happen “off-chain” — away from the energy-intensive proof of work process.

For example, two parties might trade NFTs on a second layer where they can make a virtually unlimited number of transactions gas free. Once they’re done doing business, they can settle up the net result of the transactions back on the main blockchain, where it will be added to the verified ledger via the proof of work process. Think of it as bundling a group of transactions into only one or a few that need to take place on the inefficient blockchain. Immutable X, or IMX for short, is an example of this type of solution for Ethereum.

Then there’s the most straightforward solution to the emissions problem of NFTs: clean energy. If more cryptocurrency machines run on cleaner energy, emissions go down, end of story. But then again, there is a limit to the amount of renewable energy we have access to, and using it to mine for tokens may or may not be the most impactful use for the clean energy.

Summary

Ultimately, without mass adoption of blockchain technology, innovation will be slow. And when resources are not invested into the technology, it’s hard to expect improvements at a fast rate.