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Are NFTs bad for the environment? Carbon, energy and more
Like blockchain, NFTs have a negative reputation when it comes to the environment. Learn why and whether that negative impact has changed in the last few years.
The volume of digital assets has exploded over the past decade, as non-fungible tokens moved from their 2014 creation to the nearly mainstream commodities that they are today.
That growing volume of transactions in turn has driven increasing levels of energy consumption and carbon emissions, prompting questions about the impact that NFTs have on the real-world environment.
The environmental advocacy group 8 Billion Trees, for example, has estimated that it would take five trees to offset the carbon emitted into the environment on average by each NFT throughout its lifecycle, including its secondary sales.
"An NFT lives in a computer, so as long as it's on the blockchain, as long as its online, it consumes electricity," said Marc Lijour, a member of the IEEE and IEEE Canada Blockchain Region Lead.
That fact, coupled with more companies and individuals tracking the energy consumption and carbon footprints of their activities, has put a spotlight on the environmental impact of NFTs.
What are NFTs?
Like Bitcoin and other cryptocurrencies, an NFT is a type of crypto asset whose ownership is registered on a blockchain.
However, unlike those cryptocurrencies, which are fungible, each NFT is a unique digital asset. In other words, each NFT is one-of-a-kind and, thus, non-fungible.
NFTs are created through a process called minting in which the asset is published as a token on a blockchain network, thereby allowing it to be bought and owned. Minting, selling and transferring NFTs, as well as the ownership of NFTs, are all validated and recorded on the blockchain. The unique identifier assigned to the NFT during the minting process provides a record that's meant to be immutable.
The first NFT, Quantum, appeared on the Namecoin blockchain in 2014 as a digital piece created by American artist Kevin McCoy.
Although NFTs often are equated only with digital art, they can take the form of music, videos, in-game items and various collectibles. They've grown in popularity in the past decade. And they had a particularly banner year in 2021, with a report from NFT data company Nonfungible.com calculating that trading in NFTs hit $17.6 billion that year -- up 21,000% over 2020.
NFTs, carbon emissions and their impact on the environment
That explosive growth in the NFT market coincided with increasing attention on environmental issues more generally.
Figures from the professional services firm PwC speak to this point. According to its tally, more than 70 countries that contribute to three-quarters of global emissions have set net-zero carbon emission targets. And 21% of the largest 2,000 public companies have committed to net-zero targets.
PwC also addressed how this relates to NFTs, writing that "blockchain technology has scaled rapidly in the last several years and is projected to expand to an even larger market across industries and countries. … Potential regulatory action by governments concerned with the energy impact of blockchain activity is another reason to focus on [NFT] sustainability."
NFTs, despite their digital nature, do indeed have an environmental impact and a carbon footprint, said Alexander Neumüller, a research associate with the Cambridge Centre for Alternative Finance at the University of Cambridge Judge Business School in England.
In fact, the impact mimics what happens in the real world: Just as creating, selling and transporting a physical item consumes resources, so, too, do tokens created and transacted on the blockchain, Neumüller said.
"With NFTs, you have nodes running and processing transactions; you're consuming electricity," he said.
The environmental impact of all the computer equipment required to mint and process transactions on the blockchain, and equipment manufacturing and the eventual end-of-life disposal requirements consume natural resources, too.
"So you have the whole supply chain as well, although the main focus currently is on the energy consumption of NFTs," Neumüller said.
As with all internet-based activities, those sustainability issues are easy to forget due to their out-of-sight, out-of-mind nature.
Demystifying NFT's carbon emissions
NFTs consume energy throughout their lifecycle, from the time they're created -- or minted -- through their subsequent sales and transactions and their perpetual storage online. All of that is energy-intensive.
The most energy-intensive blockchains are those that use a consensus mechanism known as proof of work. This mechanism features a consensus algorithm that requires miners to solve complex problems using a trial-and-error approach, with the first miner to complete the puzzle then being authorized to add a new block to the blockchain. Proof of work requires fast, high-powered computers. Thus, proof of work consumes high amounts of energy.
Proof of stake is also a consensus mechanism, but unlike proof of work, proof of stake requires miners to stake capital -- that is, cryptocurrency -- into a smart contract, which asks as collateral for the work they're doing to validate blocks on the network. Proof of stake requires less energy.
Calculating NFT's environmental impact
Any blockchain network that has smart contract capabilities can host NFTs. The Ethereum network hosts the most NFTs, although Solana, Cardano, Flow and Tezos are among the other blockchain networks that also support NFTs. Some blockchain networks use proof of work and others proof of stake. Additionally, different blockchain networks have different energy profiles, with their consumption needs and energy sources varying, experts said. Moreover, their energy profiles have changed over time. All of this factors into the NFTs' environmental impact.
Take Ethereum. It used proof of work up until mid-2022 -- a fact that prompted much of the concern over NFTs' growing energy use. However, Ethereum shifted to proof of stake -- known as Ethereum Merge -- in September 2022.
The Cambridge Centre for Alternative Finance, which researches environmental impacts of different blockchain networks, noted the significance of this switch.
"The Merge significantly changed Ethereum's electricity use, decreasing it by a staggering 99.99%," Neumüller wrote in an article discussing sustainability research findings.
Using the Cambridge Blockchain Network Sustainability Index, Neumüller and other researchers estimated that Ethereum's electricity consumption in 2021 totaled 16.40 terawatt-hours (TWh). It consumed 17.58 TWh from Jan. 1 to Sept. 14, 2022, the day it shifted to proof of stake. But its use for the remainder of the year was 3.83 TWh. Ethereum consumed 21.41 TWh in total for 2022, a concrete figure that enables the researchers to equate NFT's energy use with comparable activities, such as driving 15.7 million miles in a Tesla Cybertruck.
Researchers are continuing to work toward the fullest picture of environmental impact.
"It is necessary to assess numerous factors to comprehensively understand a network's environmental footprint," Neumüller wrote. "And while electricity consumption is a significant element, it is only one of these factors. Consequently, further research is crucial to enhance our understanding of Ethereum's environmental impact."
Moving to less negative impact
Scott Likens, PwC's global AI and innovation technology leader, confirmed that both companies and consumers are paying attention to the environmental impact of the digital world -- including NFTs.
In fact, the interest in this area is significant enough that PwC created a Blockchain Sustainability Framework to help individuals assess the potential environmental impacts. The firm also published in fall 2022 a nearly 50-page report, "Embracing sustainable blockchain innovation: Understanding the impacts of blockchain technology."
Likens acknowledged that "there is more energy required to mint and store an NFT than there is a fungible token."
But he also said NFT creators and customers have access to a growing body of information about how much energy those NFTs consume as well as the energy choices of the blockchain networks that host the NFTs.
"People do care about this, and they can choose which networks they want to mint on, and that could be based on sustainability," he said.
