A large number of factors have driven the current cryptocurrency bull run. The meme coins surge, DeFi growth and the institutional adoption of Bitcoin and Ethereum have all driven prices to new heights.
However, one of the most critical factors contributing to the mainstream adoption of blockchain technology was the NFT craze. Celebrities and everyday joes flocked to the markets to grab the latest NFT artwork and participate in this fad.
NFT markets such as OpenSea saw their trading volumes skyrocket, with tens of billions of dollars being exchanged for these unique digital assets. Moreover, with the integration of NFTs into the upcoming metaverses, their popularity is increasing by the day.
That said, the increasing trendiness of NFTs has brought its own set of drawbacks. For example, many have declared these digital assets wasteful because of the high amount of electricity they require for their creation and sale.
In this article, we explore these (very valid) concerns and their reasons. We will also check out some of the current solutions to NFTs’ impact on the environment and look at how they might become more sustainable in the future.
Let’s first explore the concept behind NFTs to understand their importance in the current blockchain landscape.
What Is an NFT?
In contrast to cryptocurrencies like BTC or ETH, which can be easily exchanged for one another, NFTs are not interchangeable. Instead, every NFT encompasses a wide range of different characteristics that allow us to differentiate them from each other. For example, they can contain unique artwork, a music file, or a video that makes them distinguishable.
And because they are recorded on the blockchain, they inherit all of the characteristics of the decentralized ledger. This means that they are easily transferable from one user to another. Moreover, they provide proof of ownership, and every transaction is registered on the transparent blockchain ledger.
As such, NFTs have gained huge traction with collectors of digital assets. Investors can freely purchase them, sell them on open markets and speculate on their value. At the same time, artists can reach a larger public for their work without going through intermediaries like galleries and curators.
Moreover, every NFT can have additional functionality embedded in its metadata. For example, they can provide voting rights in decentralized autonomous organizations or access exclusive VIP clubs.
Overall, NFT tokenization provides incredible possibilities and opportunities in the market and virtual worlds, such as the upcoming metaverse.
The “Dark Side” of NFTs
With that in mind, NFTs have been drawing some criticism from the community. The main reason behind this is that many consider NFTs a wasteful application of blockchain technology. Since most NFTs are created on Ethereum, this is a serious issue, and here’s why.
The problem is that Ethereum is still a proof-of-work (PoW) blockchain. This means that it relies on cryptocurrency mining to validate transactions on its network. Mining demands huge amounts of electricity, and Ethereum’s network power consumption can be compared to a small country.
This means that each minted NFT has a significant carbon footprint. Moreover, every time this NFT is transferred from one user to another, it requires additional resources.
When everyone is required to do their part to reduce carbon emissions, NFTs are considered sub-optimal. A single NFT on Ethereum uses as much electricity as a median household over a week, which triggers a lot of concern.
However, there might be some light at the end of the tunnel. Note how we pointed out that Ethereum NFTs are wasteful. Other blockchains have attempted to provide much more sustainable solutions.
Three major factors allow us to hope for a future with more eco-friendly NFTs:
● Ethereum will migrate to proof-of-stake (PoS). In 2022, the major smart contract platform is expected to switch to PoS, a more sustainable consensus method for validating transactions on a blockchain.
● Use of Layer 2 solutions. Blockchains like Loopring and Polygon already provide scaling solutions for Ethereum, allowing for cheaper and, more importantly, carbon-neutral NFTs.
● Alternative, greener blockchains. In 2021, we saw the emergence of many smart contract platforms that offer higher scalability for NFTs. Projects like Solana, Tezos, and Cardano consume very little energy and provide an infrastructure for creating NFTs eco-conscious.
While NFTs on Ethereum are not without their attendant problems, the issue should disappear shortly once the network shifts to PoS. Moreover, there are already some decent solutions to minting green NFTs using Layer 2 solutions or alternative blockchain platforms.
While at first many thought that NFTs were a simple fad, the reality is that they are here to stay. They provide too many benefits to investors and creators to disappear into the ether.
Even so, we should not take their environmental impact lightly. Objectively, NFTs run on proof-of-work networks consume too much power to warrant their existence. Fortunately, a wide range of alternatives can provide us with more ecologically friendly NFTs that make far less of an impact on the environment.