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 NFTs, Their Environmental Impact, & The Future

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Are NFTs Bad For The Environment?

NFTs are a way for artists to sell assets in a digital format. Each NFT is an asset that is unique, hence the term non-fungible. NFTs are big business, with the market exceeding $10 billion in sales in late 2021, as reported by CNBC.

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As the market grows, the concern for the environment grows. Most NFTs trade on the Ethereum network. This means that each transaction uses a mining process to confirm the trade and transaction. The energy used in mining concerns many who feel that it can add to carbon emissions if non-clean energy sources are used.

Here's how it works in a nutshell:

Most NFTs use Ethereum blockchain, which requires a proof-of-work system that confirms each new block.

Computer networks solve complex problems to get the right to confirm the block.

The entire network uses energy in hopes of receiving the gas fees generated in the confirmation of the block.

This system incentivizes miners to invest in more hardware that requires even more power from the grid.

Power sources that emit greenhouse gases negatively impact the environment.

Joanie Lemercier, a French artist, calculated that selling one NFT was the equivalent of powering her art studio for two years. It is estimated that the sale that took only 10 seconds consumed 8.7 megawatt-hours of energy.

Note: NFTs require energy to confirm each blockchain transaction. This means that it uses an equal amount of energy when resold, multiplying the effect of any one NFT on the market.

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NFTs For A Sustainable Future

While there is cause for concern, the NFT industry is looking at ways to make NFT transactions more sustainable and environmentally friendly.

1. Using Green Energy Resources for Mining

The first method is to encourage more renewable energy sources in blockchain mining. Taking mining off of the traditional grid and using clean energy can reduce the impact of carbon-generated energy. Options include powering mining operations with solar or wind sources. This would remove the mining from the traditional electric grid leading to carbon emissions.

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Note: Investing in green energy solutions can help the blockchain space as well as reduce the effects of carbon emissions by the traditional energy consumption of consumers. Experts are concerned with where growing resources should best be utilized and developed.

2. Moving to Proof-of-Stake Systems

While most NFTs are on the Ethereum network, those represented on Cardano and Solana operate on a proof-of-stake system. Ethereum is working on a proof-of-stake system called Ethereum 2.0, but its release date is unknown. A proof-of-stake system validates block transactions based on the number of coins the validator stakes, reducing the amount of problem-solving done in a proof-of-work system.

3. Batching Transactions

One thing that some NFT marketplaces are looking to do to reduce the energy consumption is to batch transactions. This can be done by adding a layer to the purchase process. Buyers would make transactions outside of the blockchain to then batch-process all transactions at once, reducing the energy consumption. Currently, the Bitcoin Lightning Network utilizes this type of two-layer approach.

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Bottom Line

NFTs are a growing asset class, with projections only increasing as the metaverse grows. But the environmental impact of NFTs, particularly the energy used in mining to confirm the blockchain transaction, must be addressed as the industry and impact grows. Solutions do exist that include moving to new proof-of-stake systems and batching transactions to reduce energy consumption.

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