When discussing the metaverse, needless to say, it is vital to consider any potential NFT environmental impact.

Over the last decade, environmental issues and sustainability have become topics to which society has become increasingly sensitive. This is not least because of the perceived effects of ongoing climate change.

For this reason, both the general public and companies are paying more attention to the environmental impact of their activities. In addition, there is also greater awareness of the ecological footprint arising from the production of products and services.

Crypto and the environment

One of the areas receiving much attention from those concerned with environmental issues is the crypto world. It is accused of being an energy-intensive sector. Arguably, this is due to the sheer number of computers involved in the operation of the blockchain infrastructure. Above all, it stems from the computational overhead required to support the operation of the decentralised system and its security.

Mining: what is the NFT environmental impact?

Mining is an important part of any NFT environmental impact. In particular, the Proof-of-Work (PoW) consensus algorithm used in some blockchains has been in the eye of the storm. This has been used in blockchains such as Bitcoin and, until recently, Ethereum. The algorithm in question validates each new block of transactions and is used by miners.

When considering the topic of NFT environmental impact, arguably, the role of miners should not be ignored. Miners are owners of computers that contribute their computing power and energy to the network of a cryptocurrency. They do this, of course, by generating new blocks of the blockchain. Miners then use their own computers to run the algorithm. Each miner hopes to be the fastest and win the competition with other miners. Notably, the winner receives a cryptocurrency reward.

This has led to a race among miners to equip themselves with more and more powerful and numerous hardware. Understandably, this plays into the high NFT environmental impact narrative. The goal is to win the competition, regardless of the hardware required. As part of this model, chip companies have developed hardware specifically for mining. In addition, other companies have emerged with mining as their core business. Indeed, they have often built their own farms or data centres dedicated to mining. The evolution has gone as far as using the cloud as a computing platform.

Proof-of-Work and Proof-of-Stake (PoS)

As mentioned, energy consumption in the crypto world is very much related to the use of the PoW consensus algorithm. Energy consumption is also directly connected to any NFT environmental impact. This should not be forgotten, however, many cryptocurrencies use different and more energy-efficient consensus algorithms, such as the PoS algorithm. Among the most widely used cryptocurrencies, Ethereum's blockchain recently switched from PoW to PoS, thus drastically reducing its environmental impact. Ethereum is the blockchain on which OpenSea, the main NFT marketplace, is based.

Ethereum and the environment

Vitalik Buterin, Ethereum blockchain co-founder, states that Ethereum's switch to PoS reduced global energy consumption by 0.2%. It also reduced Ethereum's energy consumption by 99.988% and carbon dioxide (CO2) emissions by 99.992%. The Crypto Carbon Ratings Institute has issued a new report about this issue. Apparently, the network now emits less CO2 than a few hundred US households produce from electricity usage over a year.

NFT environmental impact

As part of our consideration of the NFT environmental impact, it is necessary to explore the nature of NFTs. Since NFTs are registered as blockchain assets, they are minted in the same way as cryptocurrencies. Currently, most NFTs are created on the Ethereum blockchain. When an NFT is minted, a unique entry is created in the blockchain registry that identifies the asset created. Each time it is sold, the transfer of the asset is also recorded on the blockchain.

Of course, NFTs per se do not impact the environment. Despite this, any NFT environmental impact may be linked to the way that NFTs are produced. It is, therefore, related to the type of blockchain on which they are located. More specifically, there is a relationship between the NFT environmental impact and which consensus algorithm is used by the blockchain.

What happens at the creation of an NFT and in its life can be summarized as follows:

1) The NFT is tokenized on a marketplace (the most widely used is OpenSea)

Firstly, the creator of the NFT uses the platform of a marketplace to upload the information of the NFT. This is then tokenized and stored on the blockchain. Before considering in further detail any NFT environmental impact, we should explore how NFTs get listed.

2) The NFT is listed

Secondly, once the NFT has been minted, the creator can place it on the marketplace. The NFT can be quoted at a fixed price or auctioned. 

3) The NFT is purchased 

Thirdly, when the NFT is purchased, a blockchain transaction is initiated. Next, the blockchain network works to validate the transaction and transfer ownership of the NFT to the new owner. We will now return to our analysis of the NFT environmental impact arising from this process.

In the PoW-based version of Ethereum, the footprint of one NFT has been estimated at 37.29 kilograms of CO2. This is, in fact, equivalent to the carbon footprint of 82,648 Visa transactions or 6,215 hours of watching YouTube. Moreover, this is the same amount of electricity a US household uses in 47.4 days. (Source: Digiconomist)

This, however, isn’t the end of the story when it comes to assessing the NFT environmental impact. With the switch to PoS, a single NFT transaction on the Ethereum platform emits just below 0.02 kilograms of CO2. This is equal to 44 Visa transactions or watching YouTube for three hours. (Source: Digiconomist)

Conclusions

In short, NFTs are assets that can be managed on a blockchain network. They can be transferred from an owner to the buyer in the event of a sale. Strictly speaking, any NFT environmental impact is not related to the fact of it being an NFT. More fundamental is the blockchain network used to manage the NFT and, crucially, the consensus algorithm used by the blockchain.

As we have seen, the recent migration of Ethereum to the PoS consensus algorithm has had a significant impact. It has drastically reduced the energy cost of creating and trading NFTs, making this cost negligible.

Indeed, we should definitely reconsider the idea that the NFT world is energy-intensive and therefore harmful to the environment.

______

Are you interested? Contact us