It’s a fallacy to think of digital goods and products as having zero to no impact on the environment. But it is understandable why people may think this. After all, if there’s no raw materials and manufacturing required in making a digital good, how can it have an environmental impact?
The truth is that all digital products, goods, and services require a computer to operate. And a computer will always require energy to be online. That energy, more often than not, is produced on traditional energy grids. In 2021, the U.S. Energy Information Administration found that about 50% of the United States’ electricity was produced using coal and natural gas. In total, only about 20% of the U.S. electricity is generated with renewable resources.
But if all computers operate on traditional energy grids that use primarily non-renewable resources, why are NFTs and cryptocurrency specifically targeted as non-eco friendly?
The root of the problem comes from the nature of how the blockchain and cryptocurrency functions. But before we get to the problem, we have to first understand what these terms mean.
NFT: Non-fungible token. A digital token that’s verifiably unique and can’t be exchanged with another of its type for similar value. Usually associated with a piece of media or a digital good. Created using a blockchain.
Blockchain: A database that functions as a series of “blocks” that contain information that’s connected in a “chain”. New information that is added to the blockchain is based upon older blocks, so it is very difficult to falsify blockchain information. Decentralization, which means no central authority has concentrated control, is possible with blockchains because multiple independent parties validate the new information added to every block.
Cryptocurrency: A form of digital currency that requires the blockchain to function in order to create, or mint, new pieces of money. Bitcoin and Ethereum are the two most well known cryptocurrencies.
Minting: Similar to how a piece of paper or coin becomes a dollar or quarter, digital crypto and NFT minting registers a piece of code on a blockchain database. After that, the asset can be considered an NFT or cryptocurrency.
Metadata: When something is “meta” it means that it is consciously referencing or commenting about itself. This is true for metadata as it’s essentially data about data. Metadata contains useful information about the data that helps sort, contextualize, and otherwise identify the data in a meaningful way.
Proof-of-work: System of blockchain verification that requires a large amount of processing power in order to create, or mine, new data blocks. The incredibly high amount of “work” required to create and alter the database verifies that no one is able to make fraudulent changes to the network.
Proof-of-stake: System of blockchain verification that has miners/validators put down a certain amount of cryptocurrency as collateral. If they make fraudulent changes, they will lose this crypto.
NFT Energy Consumption
NFTs are inexorably tied to blockchains and cryptocurrency. Although when we think of NFTs, we may think of pictures, art, or a good like a trading card in a digital game, those assets are not the actual NFT. Rather, the NFT is a string of code (aka metadata) that identifies it as a unique file unlike any other. Because a blockchain database is near-impossible to alter or change, this unique ID can verify a file as unique from others of the same type.
Because NFTs need to be registered on blockchains to function, most minting services will use the most popular and accessible blockchains available: Polygon, Solana and, finally, Ethereum.
Memo Akten, an assistant professor at UCSD created a website called cryptoart.wtf in December of 2020 that calculated the carbon footprint that crypto art has had on the environment. Although this website has since been taken down, Akten went on to publish a guide on making ecological NFTs that outlines many of the issues that the very popular Ethereum’s network used to have.
In this guide, he states that many NFTs were sold on platforms and websites that were based on the Ethereum blockchain. At the time, a single-edition piece of artwork on Ethereum had a carbon footprint of around 100KgCO2, which is around the same energy cost as a 1 hour flight. So why was this?
The Ethereum blockchain was built on a “proof-of-work” system that requires a lot of energy to function. According to Ethereum’s article on proof-of-work, the underlying algorithm makes miners solve difficult puzzles and challenges to add new blocks, or data, to the chain. In other words, the proof that the data was real was based on the fact that it required so much work to build it. These puzzles were so difficult that the only way to solve them was through trial and error, meaning a tremendous amount of processing power was required to mine information.
Think of it as a skyscraper that required a lot of resources and engineering to create. If you wanted to alter a single floor in the blockchain skyscraper, you’d have to take it out, mess with it, and then put it back in. But, odds are, when you go to put it back in, it doesn’t fit with the rest of the floors above it. So you’d have to take all of the floors above it out and mess with those too so everything fits back together.
Because it would be so difficult to alter the blockchain skyscraper due to the large amount of “work” that would be needed to change it, we have proof that the skyscraper is verifiably real and legitimate. But, a lot of processing power means more computers. More computers, of course, means more energy. This is why “crypto miners” have extensive mining rigs with hundreds of graphics cards (which have a lot of processing power) that can solve more problems and create more blocks.
This system may seem senselessly convoluted, but it’s actually systems like this that makes the blockchain so difficult to alter. As we mentioned before, if a transaction were to change within the chain, it would be immediately apparent and signal that fraudulent activity is occurring. Making a false transaction in the chain would mean having to alter the original transactions and all the data that comes afterward. Because the processing power required is so high, this is near impossible, as a malicious miner would have to have access to enough computers to take up over 51% of the whole network’s mining power to overcome anyone else.
But an unfortunate side effect of this secure proof-of-work system is that all crypto mining which, again, is directly tied to NFTs, needs a robust mining system to function. This translates to a lot of power, which relates directly to environmental concerns regarding how much power most blockchains required to operate. Up until recently, most popular blockchains operated with a proof-of-work system.
But, on September 6, 2022, Ethereum switched over to a proof-of-stake system instead of proof-of-work.
Are NFTs Bad for the Environment?
The proof-of-stake system that Ethereum now uses acts similarly to a security deposit at a hotel or rented home. Essentially, Ethereum miners have to put down capital (money) in the form of the ETH cryptocurrency that acts as collateral. That miner is then responsible for verifying that the new blocks are valid and can create blocks themselves. If they are dishonest, or lazy, they will lose the collateral that they’ve invested in the system.
According to the Ethereum Foundation itself, this switch over to proof-of-stake, often called The Merge, reduced Ethereum’s energy consumption by 99.95%.
While this is great news, the underlying reason that cryptocurrency had such a large carbon footprint should still be remembered. Systems that need lots of energy to function, like crypto mining, operate off of traditional energy grids. These traditional energy grids, as we mentioned before, use power-generation methods like coal and natural gas that can have greater environmental impacts. These energy grids still have room for improvement to be carbon neutral or negative.
But, that said, with the new proof-of-stake system, the amount of energy that crypto mining rigs would require should be eliminated.
How to Make an Eco-Friendly NFT
It should be noted that while Ethereum is the most commonly used blockchain for minting NFTs, one should be careful about what marketplace or minting service they use. Some networks will still utilize cryptocurrencies based on a proof-of-work system. Make sure that the network you ultimately decide on uses a proof-of-stake verification system.
Many modern developers operating on the blockchain will also use a lazy minting system. While this sounds bad, lazy minting is actually a great way to help save money and resources by reducing the workload on the network when a new batch of NFTs are made. Lazy minting lets NFT creators sign a “mining authorization” that will create, or mint, the NFT at a later time. This later time is usually right before the NFT is sold. That way, when creating a new batch of NFTs, creators won’t have to mint them all at once. This reduces the traffic on the blockchain and helps spread NFT minting out evenly to reduce congestion on the associated network.
When deciding upon a website or service to use, explore their “about” section to see if they’re using a sustainable cryptocurrency that uses a proof-of-stake system. See what else they’re doing to make NFTs more carbon neutral or carbon negative, such as planting trees for every NFT sale.
As described throughout this article, there are many factors that play into creating eco-friendly NFTs. Luckily, many of those decisions can (and should) be guided with the help of a development partner with expertise across many blockchains. At PolyientX, we are committed to a sustainable Web3 approach and can help clients create NFTs on a variety of eco-friendly blockchains.