Can NFTs Really Be Environmentally Friendly?
NFTs have provided new opportunities for many, from creators to investors, but they consume a lot of energy. Is it possible to make them greener? Experts weigh in on the matter
Non-fungible tokens, or NFTs, entered mainstream consciousness in 2021, with the total trading volume of these blockchain-based assets reaching US$21.5 billion by the end of the year. But as their popularity continues to rise, there are concerns about their effect on the Earth's climate due to the significant amount of energy required to mint or create them. One study suggests that the sale of 100 NFTs produces over 10,000kg of carbon dioxide, which is more than the annual footprint of a person living in the European Union.
So, why exactly do NFTs require so much energy?
Most NFTs today are created on the Ethereum blockchain, which currently uses a proof-of-work (PoW) consensus protocol to ascertain all transactions or agree on matters such as account balances and the order of transactions. This prevents users from "double spending" their tokens and makes the blockchain tougher to hack or manipulate.
PoW, however, requires a lot of energy. Data shows that the carbon footprint of a single transaction on the Ethereum network is equivalent to more than 24,000 hours of watching YouTube.
Katy Yung, the managing partner of Sustainable Finance Initiative, a platform that advises family offices and investors on their sustainable and impact journeys, believes that the global focus on climate change will lead to developers and advocates of NFTs taking steps to be greener.
According to Jaime Lau, director of The Spectacle Group, a Hong Kong-based contemporary art gallery venturing into NFTs, this shift is already taking place. "The world is going through somewhat of a reset, with social consciousness being at the top of people's minds. We are all responsible for moving towards greener NFTs—it's already happening," she says.
While most of the sustainable innovations in blockchain and NFT are emerging from the West, Colbert Low, who is an advisor to Access Blockchain Association Malaysia, is hopeful that Southeast Asia will follow suit soon.
"The great thing about the blockchain space is the constant innovations made to develop new technologies that consume less energy. People in the NFT, crypto and blockchain spaces are more agile and able to adapt quicker than your traditional bank or aviation industry. Artists and creators also have a growing demand for more environmentally friendly NFTs. Many cryptocurrency miners in Canada and the United States are trying to be more ESG (Environmental, Social and Governance) compliant as well," he says.
Recent innovations include the creation of new blockchains. One of them is Tezos, an energy-efficient blockchain that uses the proof-of-stake (PoS) consensus protocol, which Ethereum is also slowly switching to. With the PoS system, blockchain participants, known as "validators", offer their crypto tokens as collateral for the chance to validate blocks. This removes the need for costly and energy-intensive mining farms to verify transactions on the blockchain. Cardano and Solana are two other environmentally conscious blockchains that have already gained some traction.
NFT marketplaces are also providing users with greener options. OpenSea, the world's largest marketplace for NFTs, for instance, supports NFTs created on alternative blockchains such as Polygon and Solana.
For Lau's The Spectacle Group, there are plans to incorporate carbon credits into its NFTs. And its hunt for alternate blockchains has resulted in a partnership with Noiz Chain, a platform using an advanced proof of capacity (PoC) process, which is comparatively more efficient than PoW or PoS systems as it lets mining devices in the network use their available hard drive space to decide mining rights and validate transactions. Mining data can also be removed easily to free the drive to be reused for other data storage purposes.
"It is possible to have environmentally friendly NFTs, but it must start with artists and collectors insisting on working with galleries that partner with greener blockchains," says Lau. She believes that there will come a point in the future when NFTs will have a very low impact on the environment. "With blockchains that use the proof-of-capacity process, they will leave a negligible carbon footprint. And we can expect this to be the norm in the coming years."
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