How the Ethereum Merger Ends the Environmental Debate on NFTs

One of the biggest criticisms against NFTs will become obsolete in just a few hours.

That’s because the environmental impact of Ethereumthe largest network for NFTs, will effectively be defunct after the blockchain is complete the merger– its long-awaited move to proof-of-stake. Once the upgrade is complete, the move will reduce Ethereum’s energy consumption by more than 99%according to the Ethereum Foundation, which cites data from one of crypto’s most famous environmental critics.

It’s a change that is sure to have significant implications for Ethereum and the crypto industry as a whole – including NFTs.

“The merger structurally eliminates Ethereum’s energy needs and carbon footprint,” said Johnna Powell, who leads NFT efforts at software firm ConsenSys. Decrypt. “Evolving the network’s approach to consensus ensures that Ethereum can sustainably support the next generation of Web3 creators and developers.”

How did we get here?

Currently, the Ethereum network is secured by a decentralized network of “miners” running powerful computers that compete to solve complex cryptographic equations, earning ETH cryptocurrency rewards by creating new blocks and validating transactions.

This proof of work mining model similar Bitcoin, and the results of the mathematical equations are ultimately irrelevant: they are simply performed so that miners have to expend considerable energy to solve them and win rewards. That process protects the Ethereum network and makes it very expensive for any party or group to try to take it over.

As Ethereum has grown from its launch in 2015 and decentralized apps and use cases have gained momentum, the drawbacks of this model have become more and more apparent.

In 2021, as network activity increased – in part, or perhaps even in large part, due to explosion in popularity of NFTs— The value of ETH (which is needed to complete transactions) also increased. As the value of ETH increased, it thus became more profitable to mine. And as mining activity increased, so did Ethereum’s energy consumption.

According to estimates from Digital economist– a product of widely cited researcher and cryptocritic Alex de Vries – the amount of annual collective energy used to secure Ethereum rose from just over 9 TWh at the start of 2021 to over 81 TWh at the end of the year. The figure reached a peak of almost 94 TWh in May, and currently stands at almost 80 TWh.

What does that mean? Digiconomist suggests that Ethereum’s decentralized network uses as much electrical energy as the country of Chile in a given year, and has a carbon footprint comparable to all of Hong Kong.

When the network-wide energy count is broken down per transaction, Digiconomist estimates that a single Ethereum transaction uses as much electrical energy as the average American household does in an entire week. (Note that while the Ethereum Foundation cites Digiconomist’s network-wide estimates, it claims that per-transaction comparisons with rival blockchain networks may be misleadingly framed.)

As pictures of monkeys traded for millions of dollars and tokens poured into the NFT space last year, Ethereum’s environmental impact quickly became one of its critics.

Creators have faced backlash from the environment, such as when Web2 digital art platform ArtStation tried to get into NFTsor when the creators of Dune film – based on a classic ecological allegory –attempted to launch NFT affiliations before the plans are scrapped. Even outside of specific examples, most prominent NFT projects have faced complaints of “killing the planet”.

Ethereum dominates overall NFT trading volume and is where most of the most valuable projects reside – but there are rival platforms that Solana and Flow which uses much less energy. Meanwhile, Ethereum likes layer-2 scaling networks Polygon and Immutable X use technology such as sidechains and rollups and not constantly interact with Ethereum’s power-hungry network.

Almost all of this nuance is lost when talking to NFT skeptics, many of whom equate any use of NFTs—that is, blockchain tokens that represent ownership in a commodity—as a waste of poisoning the earth, even when a more energy-efficient blockchain is used.

In other words, because Ethereum has become synonymous with NFTs, and because Ethereum’s network is such an energy hog, many believe that all NFTs significantly affect the environment. That’s probably why some notice refuse to use “NFT” terminology– even when selling NFTs and minting them on greener blockchain networks.

The merger is approaching

Change is almost here. The merger is the name of Ethereum’s protracted transition to a proof of effort consensus model, which means that mining will now be permanently eliminated. Instead, the network will be secured by high-value ETH holders who stake (i.e. pledge) their coins on the network and are then incentivized to validate legitimate transactions.

According to the Ethereum Foundation, the change will immediately result in a 99.95% drop in Ethereum’s energy consumption. Digiconomist in the same way estimates a 99.98% decline in energy use. Admittedly, these are estimates, but they follow examples of proof-of-stake networks that are already flourishing in the NFT and crypto world.

In February, Deloitte Canada issued a report in February which claimed that the Flow blockchain network – which operates NBA top shot and other collectibles platforms – used just 0.18 GWh of energy in all of 2021. When shared between all transactions on the network, Flow claims that minting an NFT requires less energy than a simple Google search.

The report put Solana’s annual usage at around 11 GWh, meanwhile – still a fraction of Ethereum’s current estimated toll. Meanwhile, have The Solana Foundation claims that when that energy footprint is broken down, a single Solana transaction requires about as much energy as 2.5 Google searches … and 99.99% less energy than a single Ethereum transaction.

Meanwhile, Polygon’s own study suggests that their proof-of-stake sidechain validators use only 0.00079TWh annually compared to around 80TWh on Ethereum. True, Polygon still taps into the Ethereum network to prove its transactions – but even so, a single transaction via Polygon requires a fraction of the energy of a comparable transaction made only on Ethereum.

That caveat will also disappear with the merger, just as it will for other Ethereum scaling networks such as Immutable X and Arbitration which runs more energy-efficient chains that still roll up to the Ethereum mainnet. The entire Ethereum ecosystem will benefit that way.

More broadly, the entire NFT ecosystem should benefit from Ethereum’s merger by effectively eliminating one of the most prominent—and arguably most sensible—arguments against using blockchain tokens to represent digital ownership of things like artwork, avatars, collectibles, and interactive video game objects.

As Ethereum ditches its prohibitive energy-hungry mining model, no significant NFT network will use proof-of-work or any substantially similar model. It is NFTs on stacksa network that rolls up transactions on its own energy-efficient blockchain and commits them to Bitcoin’s proof-of-work network – but it produces very little activity.

However, there is one wildcard in the mix: some Ethereum miners, apparently upset about the merger cutting them out of the equation, are planning to launch a forked version of Ethereum called EthereumPoW which still uses proof-of-work mining. Because it will be a copy of the Ethereum network as it stands before the merge, the fork will create duplicate versions of Ethereum’s NFTs.

However, sentiment among Ethereum NFT creators is overwhelmingly in favor of the merger and the proof-of-stake network, which Decrypt recently detailed. There may be some initial market action around the duplicate NFTs, but few expect EthereumPoW to find a significant, ongoing base of users and NFT collectors.

How it will help

One of the biggest winners in the potential shift in perception could be NFT games. Many video game fans have been outwardly hostile against NFT game projects and their creators, leading to some projects being canceled after backlash – including NFT projects from the developers of games that STALKER 2 and Worms.

Players have a number of complaints about NFTs, including the prevalence of fraud and the belief that publishers will use them to try to extract more value from players.

However, the environmental criticism never really suited NFT games, as most of the major games in the Ethereum ecosystem – from Axie Infinity to The sandbox and Hurt– use scaling technology to drastically reduce energy consumption. Meanwhile, many other notable projects use energy-efficient chains, such as Ubisoft’s in-game NFTs running on proof-of-stake Tezos.

But the impact should be felt more widely than just in games, as the eco-killing argument loses its footing. Ethereum still faces challenges going forward in scaling to accommodate larger volumes of transactions and cutting back on skyrocketing gas fees, but the apparent lack of a huge energy footprint may ease some concerns about the network and NFTs in general.

Eric Diep, co-founder of Ethereum smart contract startup Manifold—who has worked with one number of prominent creators to run NFT projects—told Decrypt that proof-of-work mining is one of the key factors that has “sidelined a huge amount of potential value and creative energy from contributing to the Ethereum ecosystem.”

“Assuming that proof-of-stake reduces the environmental concerns of NFT production,” he added, “I believe the merger will unlock a tremendous amount of creative potential energy on Ethereum, and in the NFT creator community at large.”

Of course, making the largest NFT platform dramatically more environmentally friendly will not automatically convince critics. There are still misconceptions about NFTs and how they work, not to mention concerns about widespread speculation and fraud. Although skeptics believe that NFTs are, on the whole, more environmentally friendly than before, the backlash may continue.

“These narratives come from an extremely charged place,” said Furqan Rydhan, co-founder and CEO of Web3 development platform. Thirdweb. “I expect the critics of Web3 and NFTs to drop the environmental issue and focus on their other talking points.”

Skeptics and supporters may still disagree widely about the value of NFTs and digital ownership, but the environmental issue was difficult for even ardent Web3 fans to defend. After years of waiting, the merger should all but eliminate Ethereum’s significant energy needs – removing one of the biggest obstacles to mainstream adoption of NFTs.