21.04.2022

Keeping it Green NFT Style — Are NFTs Environmentally Friendly?

Keeping it Green NFT Style — Are NFTs Environmentally Friendly?

Today’s Western world is very much focused on the many impacts humanity has on this beautiful planet. Individuals, organizations, and even governments have dedicated time, resources, and attention to addressing issues around climate change.

Unfortunately, one of the most common arguments taken against cryptocurrencies is that they consume too much energy, and are accelerating the warming of the Earth. “NFTs/Bitcoin/Ethereum is boiling the oceans!” has even become a snarky, sarcastic counter meme at this point. But which take is really true?

What FUD spreaders believe our oceans will look like because of NFTs

Well, first of all it is important to always keep in mind that not all NFTs are created equally. When it comes down to measuring the environmental impact imbued by an NFT, perhaps the most important place to start is where that NFT was minted. What blockchain, what NFT marketplace, and how much ‘work’ was required to create that NFT all play a factor.

As it turns out, NFTs don’t seem to be all that disastrous as FUD (fear, uncertainty, doubt) spouters would make them out to be. To prove our point, we’ll take a look at some of the top NFT blockchains, their transaction protocols, and energy consumption. So get your green thumb ready, put your thinking cap on, and let’s jump into our Earth Day NFT discussion!

How NFTs are tied to the environment

While NFTs may be largely digital, they do require energy to be made. In order to trade or create an NFT, one must first pick an NFT marketplace to mint from. NFT marketplaces will determine which type(s) of cryptocurrency you can use to mint or trade your NFT(s), and therefore which blockchain and transaction protocol you use.

The cost to mint an NFT is generally paid in the form of cryptocurrency, and therefore must follow the underlying rules of that crypto’s blockchain and transaction protocols. The same goes for any trading, be it selling, swapping, or buying NFTs. For example, most NFT trades today take place on Ethereum (80–90% of all NFT trading), which means they must go through a process called Proof-of-Work in order to be successful.

Just like with plain ETH, when you send an NFT to another person via Ethereum, the transaction requires Ethereum miners (super computers) to solve complex mathematical problems in order to potentially approve a group of transactions (called a block). This system is called Proof-of-Work, and it can require a seemingly high amount of energy consumption. But not as much as you might think.

Side Bar: In the crypto industry, Proof-of-Work has been the greatest recipient of FUD since the introduction of Bitcoin. To paint the picture for why PoW is constantly railed with FUD, it’s important to know that Bitcoin is by far the largest digital asset network in the world. In order to secure the Bitcoin network, thousands and thousands of super computers require high amounts of energy constantly, everyday. Bitcoin miners tallied up around 0.5–1% of global energy consumption, or roughly 177.43 TWh/year. Keep this number in mind as we continue.

To further break this environmental ecosystem of NFTs down, let’s look at the properties of three of the most popular blockchains used for NFTs and what they are doing to be environmentally responsible.

Ethereum

Ethereum is easily the most popular and most widely used platform used for NFTs. The platform does in fact use PoW to secure the network’s blockchain. But when compared to the likes of Bitcoin, Ethereum’s total energy consumption pales in comparison.

Not only have Ethereum miners mined about six times the amount of ETH than BTC mined, they have done so at 44.5TWh/year. That’s right, about 1/4 the energy consumption of the largest PoW network. So in terms of energy usage, the Ethereum blockchain seems to be designed for more environmentally minded efficiency.

Plus, should Ethereum complete the transition to a Proof-of-Stake consensus protocol, the network wouldn’t require nearly as much computing power from miners. Instead transactions could be approved more authoritatively, considerably reducing energy consumption. Ethereum could then start looking more like Polygon…

Also, a useful metric to keep in mind is the transaction volume of NFTs on Ethereum. According to The Block, NFT trade volume per week waivers between $250 million — $1 billion from 2021–2022, whereas the daily trade volume of Ethereum currently sits around the $5 billion mark. That’s roughly $35 billion in weekly trade volume!

If we imagine every transaction on the Ethereum network were to require an equal amount of energy to be completed, then based on weekly NFT trade volume ($625m roughly averaged), NFTs would only require 1.78% or 0.794TWh of Ethereum’s energy consumption per year (assuming consistent weekly trade volumes). While this isn’t the most accurate calculation, it does give us an idea of how much energy NFTs take up on Ethereum.

Polygon

Closely related to Ethereum is the sidechain, Polygon. Polygon operates tangentially on Ethereum’s protocol and was designed for a higher throughput (more transactions per block) than Ethereum, allowing the network to be faster, cheaper, and to consume less energy.

In fact, Polygon consumes considerably less energy than Ethereum because the network relies on Proof-of-Stake and DeFi mechanisms to verify transactions. The result is that Polygon’s validators consume about 0.00079TWh/year while continuously drawing about 0.00009GW, which is orders of magnitude below the energy consumption by the major PoW blockchain networks like Ethereum.

Polygon by 2023

Despite Polygon’s incredibly low (comparatively speaking) energy consumption levels, the platform is still aiming to go “carbon neutral and climate positive” in 2022 by completely offsetting carbon footprints. The end goal for Polygon is to become the first blockchain to be known as “climate positive.”

Binance Smart Chain or BSC

As the world’s largest crypto exchange, Binance has also tapped into the NFT industry by creating their own Proof-of-Stake protocols on their Binance Smart Chain (BSC).

Like Polygon, BSC is considerably cheaper to mint and trade NFTs on thanks to a high throughput, and a PoS consensus. BSC was created to offer NFT enthusiasts an environmentally friendly NFT platform as the founders believe “NFTs should begin to heavily rely on clean energy protocols, regardless of which protocol they’re run on.”

Is crypto energy consumption bad?

At this point, you may be asking yourself, “if Proof-of-Work consumes too much energy and is threatening the environment, why not just switch NFTs to Proof-of-Stake?” The debate between the two consensus protocols is voracious. PoW has higher costs because it is a purely decentralized, uncensorable system. PoS systems on the other hand, are centralized to the stakers and can be more easily manipulated. They are, however, clearly more environmentally friendly in the short term.

In the case of PoW being bad for the environment, that idea assumes the high amount of required electricity is automatically harmful to the environment (because of things like emissions). However, this argument doesn’t acknowledge that most computing power in the mining industry comes from renewables like hydro, geothermal, or even uses stranded energy like gas flares. In 2021, nearly half of all NFTs made on the Ethereum network run on renewable energy sources, and that number is only increasing.

Also, while PoW allows for verifiable blockchain security, and thus harder forms of digital assets, it incentivizes healthy competition in the favor of the environment. Miners are constantly on the lookout for new versions of their mining computers that will do the same job for less energy, or provide greater output for the same amount of energy. Also to ensure their business can thrive, mining operations seek out the cheapest forms of electricity, which usually ends up being one of the aforementioned renewables since these are all low cost resources.

Instead of harping against NFTs, Ethereum, or other cryptocurrencies for using energy, it can be useful to also consider the alternatives. Mining gold, for example, requires roughly double the amount of energy to mine Bitcoin, and uses copious amounts of “dirty” energy (gas, coal, etc…) to do so. Plus, the traditional banking system is equally as consumptive as mining for gold is! If NFTs and cryptocurrency are to be the way of the future, perhaps we should reevaluate the validity of energy use cases.

“NfTs ArE bAd FoR tHe EnViRoNmEnT”  -  meanwhile gold mining

The most energy consumptive NFT network only ever focuses 1–3% of its total energy consumption on NFTs — and mostly with clean energy. Compared to antiquated technologies in gold and traditional banking, Ethereum’s total 44.5TWh/year of energy consumption is just about honorable.

Conclusion

When it comes down to it, NFTs should not even be in the “environmentally dangerous” discussion. In fact, they might as well be considered a green NFTs from now on! While most NFT creators use Ethereum’s Proof-of-Work consensus, this appears to be positive as miners are constantly becoming more “in tune” with the environment.

Moreover, there are a handful of reliable secondary options like BSC and Polygon that are leading the way for NFT artists who wish to thrive with eco-friendly NFT creations. The NFT industry is diverse, but the drive towards green NFTs is bringing everyone together. So don’t feel too guilty about collecting NFTs this Earth Day, because in a roundabout way, you could be helping the environment in the long run!

A good place to start is at Fayre where you can utilize our multi-chain optionality which works with all three NFT platforms we discussed in this article! With Fayre, you can rest assured that your NFTs aren’t doing any harm.

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