A group of coins, one with Ethereum written on it, one with ripple written on it, and one with the bitcoin logo on it, along with an SD Card.

Why are NFTs a threat to the environment?

By Callum Barraclough

25th March 2022

(NFTs, along with all cryptocurrencies, have a significant environmental impact. Photograph: PixaBay)

After the world entered lockdown due to the Covid-19 pandemic, Glasgow artist David Ian Brown pivoted to creating digital art, sold online to the highest bidder. The format proved to be highly lucrative for him, selling 12 of his artworks  just two weeks after starting on his new path.

Despite this , there has been a rise in outcries from people distressed at the impact on the environment pieces like David’s leave in their wake. The main reason? Non-Fungible Tokens (NFTs). See, David chose to sell his artworks as NFTs, intended to be used to verify that the owner has purchased the digital asset, the answer to collectables where Bitcoin was an answer to currency, acting as an exchange with users in return for the desired item.

NFTs can also take the form of anything  digital, including GIFs, videos, or songs, meaning that a wide variety of digital objects get put through the same process that items like David’s artwork does. To create the token associated with an NFT, the computer used to create it has to go through a series of different ‘puzzles’, acting as a security check to ensure transactions that are seen as legitimate, with it being added to the blockchain if it passes. This is called Proof of Work, and it involves users putting their crypto tokens in the network to prove they have good reason for their transaction to be included in the decentralised ledge. This is  also known as a blockchain, with there being less of a final pay out if the user fails to complete the calculations successfully.

Unfortunately, NFTs are said to be partially responsible for millions of carbon dioxide emissions, with much of this waste actively being by design. The verification algorithms dissuade people who might not commit fully to completing the calculations by making them as inefficient as possible, so that people use more electricity to create the NFTs, in turn paying more for the transaction to go through. This acts as their main way of verifying transactions, as cryptocurrency is intended to be a fully decentralised currency. Crypto operates without oversight from a government or an overseeing body, like a bank.

While crypto supporters may see this as the logical way to verify transactions, it places the entire planet at risk instead. In comparing the energy used by cryptocurrency to what many  other countries do each year, Ethereum, the chosen cryptocurrency that many popular marketplaces like Nifty Gateway and SuperRare use, happens to use Proof of Work as its verification method. Alongside Bitcoin ranks just below the United Kingdom in terms of energy used, using around 317 terawatts per year (TWh), while the UK uses 331.44 TWh. This is despite the UK using the consumed energy for a wide variety of devices, including microwaves, ovens, TVs, PCs, and video game consoles. Yet, Ethereum and Bitcoin are still near equal to the amount of energy the UK uses each year.

(Ethereum Energy consumption compares to many larger countries. Photograph: Digiconomist)

Many NFT supporters believe that these issues can be resolved, describing carbon neutral or negative initiatives as  a way to ‘offset’ the harm from NFTs, by investing in renewable energy, conservation projects,  or technology to reverse the harm done to the earth. For one artist, Mike Winkelmann, it costs $5000 to offset emissions from one of his collections of art.  Still, even with this, it does not actually do anything to reverse the damage already done to the earth by Proof of Work mining, often acting as a marketing buzzword to deflect criticism away from any initiative a company may carry out.

However, companies have cancelled plans for NFTs due to backlash from people online who see selling crypto art as being environmentally unethical, for example ArtStation, which backtracked on its decision to launch a platform for NFTs after significant backlash on Twitter. NFTs have also been described as a ‘bubble waiting to burst’, with a search on Google Analytics suggesting that the bubble has indeed burst.

One other hope that crypto supporters may have to reduce the energy cost of NFTs and crypto in general, is to move away from Proof of Work and towards Proof of Stake. This has users lock up some of their pre-existing cryptocurrency, with them losing those tokens if they are seen as having carried out suspicious activity. Michel Rauchs, from the Cambridge Centre for Alternative Finance, states that “Ethereum’s electricity consumption will literally over a day or overnight drop to zero”. While this sounds like it would handily resolve the problems outlined above with needless energy consumption, Ethereum has been promising to move over the Proof of Stake for years. However, it has failed to, with some people stating that if Ethereum fails to convince everyone that Proof of Stake is the way of the future, the blockchain network will break apart into separate chains, thus stunting any ability to reduce its energy consumption.

All  while this conflict is happening, energy used by Ethereum continues to rise, from around 8 TWh at the start of 2020, up to 113 TWh, a significant increase of around 141% that guarantees an environmental impact from the creation of NFTs, as more energy will need to be created to satisfy demand.

(Energy used in the creation of Ethereum based NFTs have been on the rise since 2020. Photograph: Digiconomist)

If NFTs significantly impact the environment, then why do so many people continue to use and buy them? One answer could be that it gives an additional check of ownership to people who purchase the piece being sold. However that assumes that the technology works as intended: a piece of artwork being an NFT does not prevent a person from coming in and making an exact copy of the image for themselves, whether that is by making  a replica of the artwork, or by just right-clicking and saving the image to your device if that is available. Compounding the issues in verifying if the artwork a user has is one bought as an NFT, to enforce legitimate ownership of an NFT, it is beneficial to NFTs’ continued existence that they are recognised as a legitimate way to sell items. However, it is difficult to convince many more people to join in with making NFTs if it fails to serve its intended purpose.

Maybe the most valid explanation could be found in the amounts of money artists make by selling their artwork as NFTs. Trevor Jones, an Edinburgh based artist, sold his Picasso’s Bull oil painting for $55,555 on Nifty Gateway, while another Edinburgh based artist, Anna Louise Simpson, sold her piece for $28,000, saying that it helped her significantly as a mother struggling to make ends meet. But while many thrive off NFTs, the environmental impact is significant enough to be impossible to ignore, with there being no end in sight currently to when they will become more environmentally conscious.

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