Reasons why they’re bad for the environment

By now, you’ve probably heard of (or even participated in) the conversation about crypto and its effects on the environment. Climate activists have talked about the evils of cryptocurrency for years, and crypto bros have shot back with their own arguments too.

The conversation has become more amplified than ever with the popularisation of NFTs. Search up NFTs and the climate and you’ll find countless articles on the topic.

While most frame NFTs as an unnecessary evil due to their effects on the climate, through research, we found that there are currently solutions being worked on to mitigate the impact.

Before fully delving into that conversation though, one must first understand how and why NFTs are considered bad for the climate in the first place.

First, a bit on NFTs

In case you still don’t fully get what NFTs are, here’s a quick rundown.

NFT stands for non-fungible token. Fungibility is the property of a good or commodity that can be interchanged with other individual goods or commodities of the same type. So, fiat money and even cryptocurrency are fungible. However, NFTs are not.

NFT ownership is recorded on blockchains, which are systems that record transactions made in cryptocurrency. Blockchains are maintained across several computers, linked in a peer-to-peer network.

If that sounds like gibberish to you (which it did to me at first), the main point is that blockchains work in a way that makes information difficult or impossible to change or hack into. It’s meant to be a transparent yet secure system of recordkeeping and distribution.

Now that you know what NFTs are, here’s why the environmental friendliness of NFTs has been hotly debated over recent years.

1. Minting, selling, and transferring NFTs all require energy

First, let’s understand the life cycle of an NFT. For an NFT to exist, it has to be minted, just like fiat coins. In crypto, minting refers to the process of generating a new coin by authenticating data, creating new blocks, and recording information onto the blockchain. This process, unsurprisingly, requires energy.

It doesn’t end there. Each NFT transaction—including bidding, selling, and transferring NFTs—requires electricity. If you decide to “delete” an NFT, (AKA burn it by sending it to a null, inaccessible address), that takes energy too.

Different transactions have different levels of complexity, meaning some consume more energy than others.  

At this point, you might be wondering just how much energy exactly it takes for each NFT transaction.  

A lot of people have cited Memo Akten’s article on Medium, which was most recently updated in December 2021. It’s a pretty long article that’ll make the average person’s eyes blur, so here are some key numbers it references.

Data from Kyle McDonald’s analysis on Ethereum emissions / Image Credit: Kyle McDonald

Akten studied SuperRare, one of many NFT marketplaces, to make his calculations. According to his analysis, the average footprint per average NFT-related transaction is 82 KWh or 46 KgCO2.

Akten also added some additional information obtained from artist Kyle McDonalds’ study, which included these stats involving NFTs:  

  • 100 KgCO2 to mint (apparently comparable to a one or two-hour flight);
  • 200+ KgCO2 for a sale with a few bids (comparable to a three-hour flight);
  • 500+ KgCO2 for more bids and more sales (comparable to a five-plus-hour flight).

Then, according to the Cambridge Center for Alternative Finance (CCAF), Bitcoin consumes around 110 TWh per year, which is supposedly equivalent to Malaysia’s annual energy draw.

Information from CCAF / Image Credit: CCAF

Another platform, Digiconomist, is also often cited. According to this platform, the electrical energy used by the Ethereum blockchain is 92.69 TWh, comparable to the annualised power consumption of our neighbouring country, the Philippines.

The site also reports that Ethereum’s annual carbon footprint is 51.7 Mt CO2, comparable to the carbon footprint of Sweden.

But there’s a lot of debate surrounding these numbers, as they are ultimately just estimations.  

2. Ethereum and Bitcoin’s proof-of-work models are power-hungry

You’ll notice that we’ve mentioned Ethereum and Bitcoin specifically, as those are two of the biggest names in blockchain technology.

Both Ethereum and Bitcoin currently use proof-of-work protocols, which refer to the decentralised consensus mechanisms that essentially validate transactions.

Estimations made by Digiconomist / Image Credit: Digiconomist

Proof-of-work is done by miners, who compete to create new blocks full of processed transactions. The winner shares the new block with the rest of the network and earns some freshly minted ETH. The race is won by the computer which is able to solve a math puzzle fastest—this produces the cryptographic link between the current block and the block that went before. Solving this puzzle is the work in “proof-of-work”.

Ethereum.org

Proof-of-work is known to be energy-intensive, pretty much by design, as the energy secures the network.

However, even Ethereum itself has said that its current energy expenditure with the proof-of-work model is too high and thus unsustainable. Therefore, it’s planning to move into the proof-of-stake protocol instead. This removes the “puzzle solving” needed in the proof-of-work model.

In proof-of-stake, owners of the cryptocurrency can stake their coins, giving them the right to check new blocks of transactions and add them to the blockchain. In this system:

Miners get replaced by validators who perform the same function, except that instead of expending their assets up-front in the form of computational work, they stake ETH as collateral against dishonest behaviour. If the validator is lazy (offline when they are supposed to fulfill some validator duty) their staked ETH can slowly leak away, while provably dishonest behaviour results in the staked assets being “slashed”.

Ethereum.org

Some blockchains using proof of stake right now include Solana, Tezos, and Algorand, among other names. Locally, we also have Zetrix, which is what NFT Pangolin runs on.

3. Source of energy used may be unsustainable  

It’s one thing to use up a lot of energy, but it’s another thing if the energy being used is non-renewable and thus unsustainable.

According to the Cambridge Bitcoin Electricity Consumption Index, Bitcoin miners in particular were found to mostly use hydroelectric power, coal, and natural gas as sources of energy. However, there were also those who use oil, nuclear power, and renewables such as wind, solar, and geothermal energy.

According to Ethereum, “a lot of mining uses renewable energy sources or untapped energy in remote locations”. However, Ethereum argues that many industries that NFTs and crypto are disrupting have huge carbon footprints too, such as the finance sector.

Of course, two “wrongs” don’t make a right, and the finance sector’s impact on climate change must continue to be improved too.

4. The add-on of electronic waste

Electronic waste is a problem that extends beyond NFTs, but crypto certainly plays a part in it, especially when it comes to Bitcoin mining, which requires special application-specific integrated circuits. Ethereum mining is done with graphics processing units (GPUs) found in every home computer.

Mining “rigs” will eventually break down, resulting in lots of e-waste. According to a report by the UN in 2019, the world produces up to 50 million tonnes of e-waste and only less than 20% of e-waste is formally recycled.

The problem with e-waste is that when exposed to heat, they release toxic chemicals into the atmosphere. This adversely affects not just our climate but our health as well.

So… NFTs are killing the earth?

In the big picture, the main contributor to climate change is the burning of fossil fuels. For now, cryptocurrency is only a fragment of other factors damaging our environment.

Of course, that doesn’t justify crypto’s impact on the climate. But when the internet started being a thing back in the olden days, there was a lot of debate on its environmental footprint too.

This CNBC article interviewed Jonathan Koomey, a Stanford University lecturer who helped debunk widely circulated projections of power consumption by the internet in the 90s. At the time, studies were overstating the internet’s share of US electricity consumption and projected that it’d double in 10 years.

And look at us now, just gobbling up memes on Twitter and sending each other DMs on Instagram without a care in the world.

Still, the fact of the matter is that NFTs at their core still carry a legacy of high electricity usage and a positive carbon footprint. We know that.

But this journal from HBR posed an arguably better, contextualised, and nuanced question: How much energy does an industry deserve to consume?

Everyone knows that cars leave a carbon footprint, but many of us have collectively decided that it’s some kind of necessary evil. It’s a willing sacrifice we make for the sake of efficiency.

Some people think crypto is dumb. And for others, it’s their livelihoods. And perhaps, like the internet, crypto might inevitably be the future.

In any case, I’m personally glad to see platforms like Ethereum at the very least being transparent about their carbon footprint. As written on its website, “We’re not here to defend the environmental footprint of mining, instead, we want to explain how things are changing for the better.”

  • Read other articles we’ve written about NFTs here.



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