NFT Sustainability Part One: Defining the Problem | Ingram Yuzek Gainen Carroll & Bertolotti, LLP

• The Ethereum blockchain uses as much energy annually as Switzerland.
• Mining Bitcoin uses more power than entire countries such as Argentina, Sweden or Pakistan.
• A single transaction on the Ethereum platform uses an amount of energy equivalent to the power consumption of an average US household over 5.51 days and also generates a carbon footprint equivalent to 201,577 Visa transactions or 15,158 hours of YouTube viewing.

These statistics can make your head spin! They also help paint a vivid picture that captures the environmental impact that many individuals in the blockchain arena are addressing.

In fact, there are legitimate concerns regarding the climate and environmental impact of the energy-intensive methods used to generate NFTs and build metaverse ecosystems. While some question whether the NFT boom is over, and despite fluctuations in transaction volume, the number of active NFT buyers and sellers continues to grow. As NFTs continue to be integrated into the global community, it is important to be aware of how this new digital technology implies the natural world.

Why do NFTs use so much energy?

NFTs are energy depleted because they are hosted on blockchain platforms. Blockchain is a technology that permanently records transactions, typically in a decentralized and public database. NFTs are largely based on the Ethereum blockchain. The Ethereum blockchain uses the so-called “proof-of-work” operating method to create NFTs (minting means converting a digital file into a digital asset). According to Investopedia, “the purchase of an NFT is often the catalyst for NFT to be embossed. Using proof-of-work, NFT is embossed – or” extracted “- by cryptocurrency miners who control extensive data resources. The mining process is energy intensive, with specialized computer hardware using huge amounts of electricity. ” In addition to the embossing process, the transmission of NFTs can also consume a large amount of energy. Once the NFT purchase is complete, the NFT can be stored in a wallet or transferred to another person. If the NFT is transferred to another NFT platform that uses proof-of-work, the same energy-intensive process that was used to characterize the NFT for the transfer is repeated.

Minting (and then transferring an NFT to another person) is generally a very energy consuming process. Many blockchains run on the high energy-consuming proof-of-work mechanism, but this is not the only mechanism blockchains use. The “proof-of-stake” operating method uses less energy than proof-of-work because it does not require extensive use of computer hardware. According to Investopedia, crypto-miners participating in a proof-of-work blockchain network are motivated to consume power in an attempt to successfully extract a block. Conversely, crypto-miners who contribute to a proof-of-stake blockchain must invest (agree not to trade or sell) their cryptocurrency holdings. Implementing a blockchain validator deployment requirement is one way to secure a blockchain without requiring network participants to use too much energy.

The good news

NFTs are still relatively new. Many people, brands and companies are taking action to educate themselves about the environmental impact of NFTs and are developing methods to mitigate the harmful effects associated with excessive energy use. The blockchain platforms that currently use proof-of-work seem to understand the environmental consequences caused by the embossing process and are beginning to transition to the proof-of-effort system. As an example, Ethereum recently announced that it will merge with the proof-of-stake system and reduce Ethereum’s energy consumption by ~ 99.95%. There are also other blockchain platforms that use the proof-of-effort mechanism to support the creation and transfer of NFTs.

Part two of this article will highlight environmentally friendly initiatives and NFT projects that help combat climate change and environmental concerns.

What are your thoughts on NFT sustainability?