Who Bears the Environmental Cost of Mining NFTs
From inception, NFTs have always been polarizing.
NFTs are created through a process called mining, which requires significant amounts of energy. One study found that the process of mining a single Bitcoin uses more energy than the annual consumption of 159 countries. So when these costly, blockchain-based JPEG files found their way into the mainstream space early last year, it raised a lot of speculation about what they meant for the future of digital art.
NFTs were created as a way to represent digital scarcity, but some activists are concerned about their environmental impact.
So it raises the question about non-fungible tokens’ relative energy consumption: Bitcoin (BTC) and other cryptocurrencies have long been known to require huge amounts of energy, much of which comes from cheap fossil fuels. Can NFTs, which are also based on blockchain technology, be more sustainable?
The answer is actually complicated. While it’s possible to create NFTs that use less energy—or even no energy at all—the vast majority of them still require a fair amount of power. And as the demand for NFTs grows,
Independent researcher, Kyle McDonald was inspired by an online bitcoin challenge to create a dashboard for determining the percentage of Ethereum transactions attributable to NFTs. He shared another dashboard at the end of 2021, determining the emissions of the entire Ethereum network.
Mcdonald’s work is informed by the need to have hard, current data at hand before making decisions.
“If you want to be an effective climate activist, it’s important to have numbers that are as up-to-date as possible,” he said. “It’s much easier for me to present a case for why we need to change something if I can say, ‘Here’s the data. Here’s what it means.'”
Blockchains are giant public lists of transactions; each new transaction added to the list is verified by a network of computers running special software. The Ethereum network, which runs on the cryptocurrency of the same name, is the largest and most popular blockchain for NFTs. It’s also one of the most energy-hungry.
In September 2020, a research firm called Digiconomist estimated that each Ethereum transaction used as much electricity as an American home uses in two days.
These different processes for confirmation are known as “consensus mechanisms” – how this network of computers reaches an agreement as to which transactions are legit or false.
The oldest consensus mechanism in the cryptosphere is known as “proof-of-work”. It was first used in the original cryptocurrency, bitcoin, and involves computers dedicating themselves to solving complex mathematical problems.
The computer that solves the problem first is rewarded with new bitcoins – as well as the transaction fees included in the block of data they processed. The race to be first also requires a lot of energy. Bitcoin, Ethereum, Dogecoin, Monero,and Zcash all operate this way.
To calculate a direct relationship between NFTs and CO2 emissions, one would have to calculate if minting NFTs have increased the energy demand for the overall Ethereum network. Demand for minting NFTs have raises the price of Ethereum gas prices are currently at an all-time high. The average gas price for an Ethereum transaction is now over $23. This is due to the amount of computational power required to mint NFTs, which clogs up the Ethereum network.
As the demand for NFTs increases, so does the price of Ethereum and the emissions associated with it increase
I am a bitcoin and crypto currency writer. I also work as a professional trader, and I have experience with stock trading and bitcoin trading. In my work, I aim to provide clear and concise information that helps people understand these complex topics.
