Environmental Impact of NFTs

What is an NFT?

I'll try to make this as simple as possible - NFTs, or non-fungible tokens, are digital data stored in a blockchain. Where other forms of digital currency, like bitcoin and crypto can be replaced with another, NFT's are one of a kind. That's where the "non-fungible" comes from. Every NFT is different, though not necessarily useful. There's particular interest in NFT art. That said, NFTs can be pretty much anything that's digital - a video, song, profile picture, the list goes on. They can go for thousands or even millions of dollars. I like to think of it as the world's most expensive collectable items... or, well, "items."

How are NFTs bad for the Environment?

Ok that's all well and good, but what do NFTs have to do with the environment? Well, they use a lot of energy. Since NFTs have to be verified to retain their value, they're stored in a blockchain, which guarantees the originality of the token. This system is similar to how bitcoins are mined, the difference being, of course, that NFTs are one of a kind. Blockchains are infamous for being highly energy-intensive. In order to verify tokens on blockchains, there is a proof of work system where users compete to solve puzzles, effectively verifying the token and rewarding the first to solve it with crypto. It's a win-win right? Not exactly. This consensus system consumes an amount of energy equivalent to a small country.

Can NFTs be Eco-friendly?

While the current system for NFT trading is not sustainable, there are ways NFT transactions can be made more environmentall conscious. For example, moving to a proof of stake system instead of a proof of work system would reduce the amount of activity on blockchains, and therefore reduce the amount of computing power and energy. The proof of stake system takes competition between miners entirely off the table. Instead, the verifying capacity of a user would depend on the stake in the network, and would collect a transaction fee rather than a block reward. As an added bonus, this system makes the network less vulnerable to hackers, as 51% attacks are no longer possible.

Other options would be to use renewable energy sources in mining, or to batch transactions in order to reduce energy consumption - which some NFT markets are already looking to do. So, while at the moment NFTs aren't sustainable in the long-term, there are steps being taken to reduce their environmental impact. If you're interested in getting involved in NFT trading, or just worried about the state of the earth, you can take solace in the fact that there are certain markets making an effort to be eco-friendly.

Opinions expressed by the author are not necessarily those of WITI.