Exploring NFTs and Their Environmental Impact

By Laurel Tincher · April 14, 2022 · 8 minute read

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Exploring NFTs and Their Environmental Impact

Are NFTs bad for the environment? It turns out that NFTs, or non-fungible tokens, require vast amounts of computing power that are adding to greenhouse gas emissions — fueling a debate about how sustainable these digital artworks and collectibles really are.

The concern is mounting as the NFT craze keeps growing. NFTs, which are based on blockchain technology, can come in the form of art, music, games, and more. Some NFTs have fetched millions at auction, driving a gold-rush mentality among creators and collectors.

Although the NFT space is exciting and full of possibility, the revelation that NFT production consumes enormous amounts of energy has raised red flags — and a search for sustainable solutions. Here’s what you need to know.

Recommended: What Are NFTs and How Do They Work?

How Much Energy Do NFTs Consume?

There are some estimates of the amount of electricity NFTs use and their associated emissions but it is difficult to calculate precisely. A lot of work has been done to try and calculate the amount of electricity used to run the Bitcoin network, but the NFT space is newer and less thoroughly researched.

The environmental issue with NFTs isn’t the NFTs themselves, but the blockchain network they are transacted on.

NFTs use electricity because they are transacted via online marketplaces, usually using the Ethereum network. Similar to other crypto projects, Ethereum is decentralized, meaning there is no governing body or authority like a bank that oversees the network. Rather, it once used a system of recording and validating transactions known as proof of work (or PoW). In 2022 the network shifted to a less energy-intensive system known as proof of stake (PoS).

Non-fungible tokens (NFTs) are increasingly catching the attention of investors who are looking to step beyond simply buying cryptocurrency. Many different NFTs have gained the spotlight in the decentralized finance (DeFi) space, whether they represent art, music, or other types of collectibles.

The PoW system functions using a network of miners or nodes, machines that solve complex mathematical problems. When a problem is solved, a new block of transactions is verified and added to a decentralized ledger. The ledger keeps track of all transactions that have occurred, showing which addresses bought and sold them and for what amount.

Since Bitcoin mining and other types of crypto mining require tremendous amounts of energy to solve transactions, it becomes hard for anyone to hack the network. The proof of work mechanism thus creates a more secure digital environment, but one that’s costly for the actual environment.

Calculating NFTs Environmental Impact

There are different ways to try and calculate the environmental impact of NFTs. One expert claimed that if there is an Ethereum transaction that has a $100 gas fee, about $40 of that goes to paying for energy. Another expert calculated that minting one NFT creates between 90-150 kg of CO2 emissions, the same as a Boeing airplane emits each hour. One artist calculated that each NFT produces an average of 250 kg of CO2 — a staggering amount of greenhouse gas emissions.

There are many transactions involved with each NFT, resulting in a much larger footprint than a regular transaction. Each NFT has transactions for minting, bidding, canceling, sales, and ownership transfer. Every one of those transactions requires energy and creates emissions.

The Effect of NFT’s Popularity Surge

The NFT market has surged in the past couple years and doesn’t show signs of stopping. There are many financial and creative opportunities for those who want to create and invest in NFTs. Artists who create non-digital art are now getting into the space, and established art auction houses are now offering NFTs for sale.

At the same time, there is rising concern about the environment, and a growing interest from artists who want to reduce the impact of NFTs.

It’s challenging to figure out exactly who is “responsible” for the energy use because the NFT system involves creators, buyers, miners, marketplaces, and more. Anyone involved in the creation and sale of NFTs is therefore responsible for some amount of the energy use. However, it can be argued that crypto mining on certain PoW platforms would happen regardless of NFT usage.

The issue with this argument is similar to the debate over the carbon footprint of air travel. Although it’s true that if one person doesn’t buy a plane ticket the plane will still fly, if a lot of people buy plane tickets that results in an increased number of planes flying — and therefore an increased amount of emissions.

Thus if the price of those types of crypto that support NFTs increases due to the growing trade of NFTs, mining activities might increase and result in more energy use than would have occurred without NFTs.

Are More Sustainable NFTs in the Works?

There are ways that NFTs can use less energy.

Rather than using the PoW system, an alternative system of security and verification is proof of stake (PoS). Rather than requiring miners to use large amounts of energy to secure the network, PoS involves users “staking” some of the cryptocurrency tokens they own by locking them up temporarily, thereby proving that they have a stake.

This staking system keeps the transaction ledger accurate and up to date. The staked tokens are essentially collateral, so if a user does something to mess up the network they will lose those tokens. Since the PoS system removes the need for mining computers, it uses far less energy.

Some NFT marketplaces are using cryptocurrencies that run on PoS instead of PoW.

Ethereum itself has recently migrated from a PoW system to PoS. As a result, NFT trading will theoretically use a lot less electricity on that platform.

Sustainable Alternatives for NFTs

Another way that NFTs can use less energy is through a private network or side chain. These networks use different types of consensus systems, and therefore may have lower energy consumption. However, private blockchains remove the key benefit of blockchain transaction technology which is to run a ledger on a decentralized network without control from a singular governing body.

They can also be risky because they might be shut down at any time by their creators and suddenly all the work an artist put into having their work on a particular side network could vanish.

Making PoW More Sustainable

Even if NFTs continue to use the PoW system, there are ways to reduce their environmental impact.

Building on the Blockchain

One way is to create an off-chain layer on top of the existing blockchain, where an infinite number of transactions can take place without going through the PoW process.

Once the off-chain transactions are finished, the group of transactions can be added to the blockchain all at once, requiring far less processing power. An example of off-chain layering functionality is the Lightning Network which was launched for the Bitcoin blockchain in 2018. A company called StarkWare is developing technology for off-chain transactions on the Ethereum blockchain. Their technology could fit over a million NFTs on one block, drastically reducing the environmental impact of each NFT.

Lastly, NFTs can use less energy if mining operations switch to renewable energy. A portion of mining already runs on renewables, but it is not clear exactly how much. There is an incentive for miners to use low cost renewables because that increases their profits. Although switching to renewables would help reduce the environmental impact of NFTs, it is not a perfect solution, because NFT transactions would still put pressure on electricity grids and use energy that could go toward other uses that are perhaps more urgent, such as providing electricity to places that don’t yet have it and heating and lighting houses. There is also an environmental impact associated with the mining equipment. Equipment is often only used for a couple years and then becomes waste.

Some people who were part of the NFT space have now chosen to opt out based on its environmental impact. For instance, the website cryptoart.wtf is no longer up and running but now shows a note guiding visitors to resources about the ecological costs of cryptocurrencies and NFTs. Well-known artists such as Lemercier are working to increase awareness about the issue and encourage others to seek out alternatives to PoW NFT marketplaces. The artist has largely shifted back into creating non-digital artwork as a result of learning about the environmental impact of the NFTs he was creating.

Other artists are now including carbon offsets along with each NFT they sell, and marketplaces are buying offsets as well.

Although some work is being done and there is a lot of talk about improving the environmental impact of NFTs, many of the ideas have not yet been implemented.

The Takeaway

Investing in non-fungible tokens, or NFTs, is an exciting new space. Similar to most types of cryptocurrency, these digital collectibles are built and traded using blockchain technology — which adds to their uniqueness and novelty.

However, before starting to buy and sell NFTs — whether, art, music, fashion, or even events — you might want to do some research to learn about the environmental impact associated with those assets. Some NFTs require less energy use than others, and there is an emerging groundswell in some circles to improve the environmental impact of the cryptocurrency industry as a whole.

If you’re interested in buying stocks and other assets, it’s easy to get started using SoFi Invest®. The online platform lets you research, track, trade, and sell different securities right from your phone — including stocks, exchange-traded funds, fractional shares, and more.

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