Are NFTs bad for the environment? The impact of NFTs on climate change

These days it seems like everyone is talking about NFTs (aka non-fungible tokens), digital objects that represent physical or digital objects such as information. People want to know how to make them, buy them and ensure it’s a smart investment. But when talk of NFTs hits the mainstream, there’s another question on people’s minds: Are NFTs bad for the environment?

Well, not exactly. “An important thing to distinguish is that the NFTs themselves and their storage do not require a lot of energy; rather, it is the purchase and transfer of NFTs that rely on blockchain technology [mining]specifically the proof-of-work validation method, which is of concern, said John H. Quigley, director of the Center for Environment, Energy and Economics at Harrisburg University of Science and Technology in Pennsylvania.

If your head starts spinning at the first mention of future technology, you’re not alone. Understanding concepts like what Web3 is, what cryptocurrency is and, yes, whether NFTs are bad for the environment can be confusing. But we break down the environmental impact of NFTs in an NFT explanation that everyone can understand.

What are NFTs?

Think of NFTs as digital proofs of ownership. They represent the item you own, whether it’s artwork or sports cards.

Do not confuse them with cryptocurrencies such as bitcoin. These are non-fungible tokens, which means that each of them is unique and does not have the same value as another token. A quarter, for example, is always 25 cents, so it is fungible. An NFT does not have the same value as another NFT, so it is non-fungible.

How do you buy NFTs?

NFTs are bought with cryptocurrency (most often ethereum). While you earn money by going to a job or selling things, digital currency is created through a process called mining.

Mining uses a decentralized network of computers to verify and create information on the blockchain, a digital ledger that is run and regulated by its users. As payment for their computer use, miners receive cryptocurrency. Miners then store or sell crypto or use it to buy things like NFTs.

But people don’t just use mining to buy NFTs; they also use it to make them. An NFT starts as just a digital file that is posted on an NFT marketplace waiting to be sold. Before anyone can buy it, the digital file must be minted, which is the process of adding it to the blockchain. Minting is a form of mining.

Why are NFTs bad for the environment?

So how are NFTs bad for the environment? It all comes down to mining. Mining is done through a process called proof of work. It’s a digitally labor-intensive process to prevent people from gaming the system to make counterfeits or steal items. The proof-of-work operation needs computers far more powerful than the computer you use at home.

Many miners compete to mine at the same time, but only one person gets crypto for minting an NFT or verifying information. The result: Many powerful computers work to complete the task, all at the same time.

Powerful computers plus hordes of competing miners equal massive energy consumption. According to the University of Cambridge, mining just one type of cryptocurrency, bitcoin, uses an estimated 150 terawatt hours of electricity each year. That’s more energy than a small country uses. According to the Ethereum Energy Consumption Index, ethereum, which is mostly used to buy NFTs, has an annual carbon footprint comparable to Hong Kong. Just one ethereum transaction consumes as much electricity as an average American household over nearly seven days.

Most of these mining operations use power from countries (including the United States) that primarily use energy sources that are bad for the environment and affect climate change. For example, Kazakhstan, the leader in bitcoin mining, uses coal, oil and natural gas to power its power grid.

“Worse, here in the United States, coal-fired power plants that were dormant or slated for closure are being revived solely to fuel bitcoin mining,” Quigley says. “Gas power plants, which are increasingly economically uncompetitive, are now also being dedicated to bitcoin mining. The net result is increased carbon emissions at a time when we need to reduce them.”

Is there a future for environmentally friendly NFT sales?

Proof-of-work mining’s effect on the earth is enough to cause some climate anxiety. So if NFTs are bad for the environment, what can we do?

Ideally, mining must be powered by clean energy, such as wind, water, solar or nuclear power. According to the Clean Energy State Alliance, 21 states, plus Puerto Rico and Washington, DC, are committed to providing 100% clean energy in the coming decades.

Although encouraging, it does not solve the problem immediately. But there is something the crypto and blockchain marketplaces can do to be more environmentally friendly in the meantime. It all depends on proof of effort.

Proof of work vs. proof of effort

While the proof-of-work process pits miners against each other to essentially win crypto, proof-of-stake chooses a random miner to do the work of minting and verifying, using less complex processes. This reduces the number of computers used for any mining task. As a result, it uses less energy.

Environmentally friendly NFT platforms

Many NFT platforms are jumping on the proof-of-stake bandwagon, including Splinterlands, Band NFTs, Doge Capital, NFTX, Polychain Monsters, and The Sandbox.

They are not alone. Blockchain platforms such as Tezos, Cardano, Solana and Avalanche also use proof of stake. Ethereum is moving from proof of work to proof of stake as well.

While NFTs may not be good for the environment, they are getting better. As energy production around the world becomes cleaner, so do NFTs. The industry is becoming increasingly aware of how it affects the environment and is making positive changes to become more environmentally friendly.

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