What Is the Environmental Impact of NFTs?

The Impact Non-Fungible Tokens (NFTs) Have On The Environment And The Footprint They Leave Behind

 

The popularity of NFTs, or non-fungible tokens, has risen over the past two years. Used primarily as a means of transferring ownership of digital art and collectibles, it has sometimes risen to the level of fine arts.

But there is an extra hidden cost with NFTs - the environmental impact of using blockchain to transfer assets. The energy consumption of cryptocurrency and its impact on the environment has recently become a hot topic. The increase in NFTs only adds fuel to the flame.

How Do NFTs Work?

The non-fungible token uses blockchain technology to authenticate the ownership of an asset. NFTs contain specific information that makes them work slightly differently from cryptocurrencies. More importantly, you cannot replace NFT with a similar NFT because it is non-fungible. Any Bitcoin (CRYPTO: BTC) is equal to the value of any other Bitcoin, but not with NFTs.

Most NFTs use the Ethereum blockchain series to transfer ownership. When someone buys NFT on the Ethereum blockchain, they send Ether (CRYPTO: ETH) to the current owner or market that supports the transaction. In return, they get NFT in their wallet. Part of the payment includes "gas charges" or service charges associated with transportation. These fees go to the owners of the network of computers used to confirm transactions on the blockchain.

If you own an NFT, it's like owning collectibles or art pieces. It is practically impossible to prevent anyone from making a digital copy of a video file or jpeg displayed to the public. However, owning rights is more like owning an artist's original painting, while copying is like owning a cheap print label. The asset is valuable; printing is practically worthless.

How Do NFTs Affect The Environment?

NFTs' environmental challenge is the challenge of the entire encryption industry.

As mentioned earlier, the majority of NFTs use the Ethereum blockchain series, which uses a proof-of-work system to confirm each new block. This means that all computers on the network (i.e. miners) are racing to solve a complex problem. The first computer on the network to solve it receives the right to confirm the mass and collect gas charges associated with each transaction in the block, in addition to a bonus.

With the high price of Ether and increased gas charges, the value of solving this problem in the proof-of-work system also increases. As a result, the two metals are motivated to invest in more computer power, which derives an increasing amount of energy from the power grid. If this energy comes from sources that emit greenhouse gases or are harmful to the environment without anything to compensate for, it will negatively affect the environment.

But it's hard to know exactly how NFTs affect the environment. NFTs represent a small part of transactions on the Ethereum blockchain. It's unclear whether they moved the needle meaningfully in terms of how much computer power miners add to the network to solve these complex problems. Although NFTs are likely to have a non-zero impact, they may not have as much impact as the broader adoption of encrypted finance and DeFi in general.

Environmentally Friendly NFTs

There are several ways to make NFTs more environmentally friendly.

First, there is a move within the encryption space to use more renewable energy sources in mining. But this solution poses its own problems of continuing to put pressure on the electrical grid, not to mention that renewable energy can likely go towards other, more pressing needs, such as keeping people's lights on.

Other options include changes with NFTs' core technology. Using blockchain that relies on the more energy-efficient quota proof system can reduce consumption and greenhouse gas emissions attributed to NFTs. Through the quota proof system, metal workers lock up a certain amount of cryptocurrencies, allowing them to confirm the next block on the blockchain. Computer power becomes irrelevant.

Many blockchains already use the quota proof system and support NFTs, including Cardano (CRYPTO: ADA) and Solana (CRYPTO: SOL). Ethereum migrates to a quota proof system called Ethereum 2.0. It has been working on change for years now, however, there is no clear date for switching.

Another solution to the environmental challenge is to use a second layer above the blockchain. The second layer allows anyone to make transactions outside the blockchain and then process them at once in one large transaction on the blockchain itself. There are many "second-tier" solutions for all types of blockchains, most notably bitcoin Lightning Network.

What Does The Future Hold For NFTs?

There is a wide push from both artists and collectors to make NFTs more environmentally friendly. Not only that but there is also pressure on the entire cryptocurrency industry to minimize the environmental impact of encryption assets. 

If the market asks for a more environmentally responsible way to buy, sell and collect NFTs, the industry will do the trick. Solutions already exist, and many NFT markets and platforms promote environmental compatibility for their services. We may see more NFT projects move to those platforms and turn into the blockchain that uses a quota proof system to confirm transactions.

But no other blockchain supports the smart contracts needed for NFTs that have Ethereum reliability and reputation. Therefore, larger NFTs, such as unique creations from artists like Beeple, may still want to use the Ethereum blockchain. To this end, the Ethereum network has to move to Ethereum 2.0 or develop a trusted Layer 2 solution for NFTs on the Ethereum blockchain.

Should You Consider Investing In NFTs?

If NFTs interest you, but you worry about the environmental impact of buying and selling on the blockchain, you might want to do some additional research before investing. Finding NFTs that use blockchain to prove the quota is not difficult, but some of the most common projects will be blocked if you refuse to use Ethereum blockchain.

More importantly, keep in mind the fluctuations of NFTs. Their value can swing further than the cryptocurrency, and given the fact that they are non-replaceable, it may be difficult to liquidate since the buyer should order your NFT. If you need to sell, you may have to accept a price below the market value or wait for the buyer to meet your price.

If you're planning to invest in NFTs, make sure you buy something you'll be proud to own because you might end up stuck with it. The good news is that if you never sell it, it won't have any other impact on the environment.