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Non-fungible tokens (NFTs) are gaining popularity, attracting multi-million dollar trades and celebrity interest. However, in addition to making headlines, it is also producing an unintended byproduct that is supposedly keeping environmentalists and crypto critics up all night: significant energy usage, which adds to the entire carbon footprint generated by cryptocurrencies, particularly Ethereum. However, there’s much more to it than what is being portrayed by the media.
NFTs are Ethereum-based tokens that are a component of the Ethereum blockchain. Platforms that offer NFTs generally need buyers to utilize Ethereum to complete their transactions. According to reports, the digital token already consumes about the same amount of power as the whole country of Libya.
Greater demand and increasing NFT transactions suggest profit potential for miners, which might lead to increased emissions. The basic premise is that NFTs may dramatically increase the value of Ethereum, motivating more intense and more energy-intensive profit mining, therefore increasing the number of hardware miners employed. And more machinery usually equals more pollution.
NFTs are partially to blame for the millions of tonnes of planet-warming carbon dioxide emissions produced by the cryptocurrency used to acquire and trade them. Some artists, even those who have already benefited from the craze, believe it is a simple problem. Others believe the proposed alternatives are unworkable.
However, while critics and media frequently point fingers at the cryptocurrency sector, they hardly weigh in on how our traditional infrastructures have been harming the planet all along.
Are NFTs the villain?
A report from nonprofit climate CDP revealed that banks’ greenhouse gas emissions associated with just financial institutions’ investing, lending and underwriting activities are more than 700 times higher, on average than their direct emissions.
The non-profit examined the funded emissions of 322 financial organizations with $109 trillion in assets, based on data provided by asset managers, asset owners, insurers, and banks to CDP.
The results were startling, yet they were lacking. Only 25% of the firms reported funded emissions, and of those that did, the majority reported on less than 50% of their portfolios, masking the real impact of their financing operations.
The reported funded emissions totaled 1.04 gigatonnes of CO2, accounting for approximately 3% of world emissions in 2020. The real figure is certainly far higher. It must also be noted that this survey was conducted at a much smaller scale when compared to the total number of banks that exist.
The total carbon footprint left by our existing infrastructure far outweighs what is produced from the NFT sector.
Should NFTs be blamed?
It wouldn’t be truthful to say that NFTs don’t cause carbon emissions, but things are a bit more complicated. NFTs exist on an underlying blockchain technology, and the majority of the NFT sector is based on the Ethereum Network.
NFTs consume a lot of energy since they rely on a blockchain. Most developers continue to utilize Ethereum, a blockchain protected by a proof-of-work system similar to Bitcoin. This includes mining, an energy-intensive computational process. Mining computers take turns attempting to guess the combination of a digital lock (a long string of random digits). The machine that successfully guesses the combination receives a prize in Ether, a cryptocurrency. The competition continues as the digital lock resets every 15 seconds. Ethereum consumes around 31 terawatt-hours (TWh) of power every year, roughly the same as the whole country of Nigeria.
It is difficult to determine how much responsibility the NFT sector should bear for Ethereum’s carbon emissions. Ethereum would function with or without NFTs. However, as the demand for digital art grows, NFT purchasers and sellers are becoming accountable for a more significant percentage of Ethereum’s overall energy usage, and some artists are beginning to reconsider.
Advocates of NFTs are frustrated that they are being entrusted with addressing and correcting the Ethereum network’s damage, but there hasn’t been a corresponding effort targeting miners, who are accountable for more environmental effects.
One of the best properties of the blockchain industry is that it’s constantly innovating and evolving, thanks to its decentralized nature. The industry is coming up with solutions to mitigate damages to the environment.
For starters, blockchains are being fueled by renewable energy sources, which is currently happening as a result of China’s ban on coal-guzzling server farms and the rise of green alternatives.
The second and more urgent option is to change the blockchain algorithm from Proof-of-Work (PoW) to Proof-of-Stake (PoS). This system, which ethereum is aiming to adopt, consumes significantly less power since the ledger is secured by users “staking” their own cryptocurrency tokens.
As the NFT market expands, artists and environmentally conscious collectors are increasing pressure on platforms to adhere to lower-carbon solutions and offset emissions. As such, NFT markets have discovered solutions to address the concerns of artists and collectors worried about the environmental effect of their activities.
Carbon Offsets have been acquired by the marketplaces Superrare and Zora. Meanwhile, NFT artist Beeple has also promised that all of his future pieces will be carbon neutral or negative. The Offsetra company provides an emissions calculator and sells carbon credits to offset emissions caused by NFT transactions.
A new system for Nifty Gateway is now being implemented, which would allow the company to mint numerous NFTs in one transaction instead of many separate transactions, possibly making their use of blockchain 99 percent more efficient. With these technical advances and carbon offsets, Nifty Gateway has committed to becoming carbon zero within the year.
Some NFT markets promote their environmental friendliness by utilizing cryptocurrencies such as Tezos. Tezos employs the less burdensome “proof of stake” algorithms as compared to “proof of work” algorithms in use by Etherem, consuming significantly less energy overall.
Benefits of NFTs outweigh their environmental impacts
Creators and consumers in India and across the globe are embracing the practice of selling digital art online through NFTs. The movement is gaining traction in India’s creative community, as individuals view the medium as a chance to break through established conventions in such sectors and diversify their revenue streams.
Musicians, artists, photographers, and poets see NFTs as a method to eliminate middlemen and achieve greater control over their work. Because they are on a blockchain, their ownership is forever verifiable, allowing royalties to be tracked.
For consumers, NFTs offer a guarantee that they are the owners of a one-of-a-kind digital asset. For those who are more skeptical about adding New Media works to their investment portfolio, there is a possibility of certifying proper ownership over the work and claiming genuine “scarcity”. This reassurance for consumers could actually help digital artists break into a market that relies on originality and authenticity.Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.