Are NFTs destroying the planet? It turns out they are not as much as their ‘haters’ would like you to believe.
A new cultural phenomenon swept the world in 2021. A generation of digital artists found a way to monetize their work on the blockchain through NFTs, leading to the most sought-after pieces selling for astonishing amounts. Beeple made headlines in March when he sold an NFT for $69 million at Christie’s. Avatar-based NFT collections like Bored Ape Yacht Club also surged in popularity. Bored Apes launched in April and were adopted by celebrities like Paris Hilton, Jimmy Fallon, and Snoop Dogg. A year later, their price peaked at around $435,000.
Most NFTs that emerged during the 2021 boom are on Ethereum when it was using proof-of-work, a well-known energy-intensive consensus mechanism that also secures Bitcoin. This sparked a reaction from certain mainstream media and crypto outsiders when they began questioning the technology’s impact on the environment. Critics on social media labeled NFTs as Ponzi schemes with high carbon emissions, sharply criticizing all artists and collectors who supported the technology.
While concerns about the impact of any new technology on the environment are valid, much of the criticism directed at NFTs is based on misconceptions about how blockchains work. So, how much energy do NFTs actually consume? Solid data suggests it is less than many critics think.
How Blockchains Work
The most common misconception surrounding NFTs and their environmental impact relates to the carbon footprint left by blockchain transactions. Many believe that transactions cost a certain amount of energy, but this is not true.
Blockchains are cryptographic accounts or digital ledgers. These ledgers keep a record of all transactions on the network in blocks. New blocks are created at regular intervals to update the ledgers with new transactions. Bitcoin creates a new block approximately every 10 minutes, while Ethereum does so every 10 to 20 seconds.
Blockchain networks are secured by service providers. Proof-of-work blockchains like Bitcoin rely on miners, while proof-of-stake blockchains like Ethereum rely on validators. Miners and validators are responsible for continuously adding new blocks to the chain. Miners need to power specialized hardware, and validators also require equipment to contribute to their networks. While both consume energy, mining is much more energy-intensive.
The amount of energy that block producers consume does not depend on the level of activity on the network. Whether thousands of transactions are occurring or none in a given period, blocks are produced at the same rate. In fact, blocks are often added to the chain with plenty of leftover/unused space.
Adding an empty block to the chain requires the same amount of energy as a block filled with NFT transactions. The entire network consumes energy, not individual transactions. Using the network to create NFTs has no impact on the blockchain’s ecological footprint.
Demystifying Transaction Fee Prices
Are there any consequences to occupying block space? Yes, but not in terms of energy consumption. On Ethereum, for example, users pay for block space in gwei. One gwei is worth one billionth of 1 ether.
Buying, selling, or sending NFTs incurs the same fee as a transaction of any other type of cryptocurrency. Although NFTs can take the form of digital art, music, or domain names, they exist on the network as tokens. Sending NFTs does not take up more block space than sending any other type of token.
In this regard, creating NFTs requires significant block space. Some anticipated drops have led to large spikes in fee prices due to network congestion. Additionally, the Metaverse project from Bored Ape Yacht Club creator Yuga Labs cost users over $150 million in fees during its NFT drop in April.
However, while complex operations like creating NFTs may have higher transaction fees, they do not cause blockchains to consume more energy. The transaction price is the only variable that changes; energy consumption does not change even if the price does.
Ethereum’s Energy Consumption
Ethereum is the world’s largest smart contract platform. It was the epicenter of the NFT boom in 2021, hosting well-known collections like Bored Ape Yacht Club, CryptoPunks, and Fidenzas. The largest NFT marketplace, OpenSea, launched with support for Ethereum before expanding to other networks. Since Ethereum is practically the home of NFTs, it is important to consider its energy consumption to understand how NFTs impact the environment.
