Posted on 05/06/2021
Simply put: a non-fungible token, or NFT for short, is a proof of ownership over a digital asset. Assets could be something like a photograph, music, or a piece of art, like the one Banksy made. Because these tokens of ownership are unique to specific assets, they are also non-fungible – meaning that they cannot be traded or exchanged in the same manner as fungible items like money, for instance. Ten one-euro coins could be exchanged with a ten-euro bill as they are considered to be of equal value. The same logic cannot be applied to NFTs, because they are unique one-of-a-kind items, unlike such currency.
The appeal of NFTs for artists and buyers alike, comes from the blockchain technology behind it. Like Bitcoin, Ethereum and other cryptocurrencies, NFTs rely on blockchain technology. Due to the decentralized nature of this technology which we will delve further into later, it is very secure and extremely difficult to fake. That means an NFT is a very convincing proof of ownership, which is beneficial for the buyer. Furthermore, NFTs enable artists to earn royalties and establish a passive source of income in a manner that is hard to achieve through more traditional means of selling art. With NFTs, artists can use blockchain in their favor so that they receive a certain percentage of the earnings when their piece is resold to a new buyer. Thus the artist is continually compensated for their work, something that is especially important if they were to experience a surge in popularity, making their art more valuable.
Quite a lot! A good portion of the attention NFTs have received recently is actually because of the way they impact our climate. Unfortunately NFTs have a massive carbon footprint, due to their usage of blockchain technology – a digital ledger of sorts, keeping track of transactions.
NFTs rely on blockchains such as Ethereum for operations like transactions. The digital ledger exists and is stored in a large network of computers. When a new transaction comes in, it goes through a process called proof of work in which the computer network solves complex mathematical equations in order to verify the transaction. Because this requires a great deal of computing power, it uses up heaps of electricity which globally, is mainly generated using fossil fuels like oil and coal – hence the huge carbon footprint. To give you an idea of just how energy-intensive blockchain technology is, a single Ethereum transaction takes 48 kWh of electricity. This is more than what is used in a day by an average household in the US.
In other words, it is the blockchain technology behind them rather than NFTs themselves that contribute to global warming through greenhouse gas emissions. However, because NFTs rely on this technology they are indirectly contributing to these emissions – though it is uncertain to what degree NFTs increase the carbon footprint of blockchain technology as a whole.
Because NFT emissions arise from unsustainable energy production using fossil fuels, the grand and ideal solution would be a global shift towards more renewable and clean energy. Unfortunately, the world has a long way to go before we are quite there. However, in the meantime there are some precautions you can take to lessen your carbon footprint if you are interested in getting into NFTs.
Most importantly, you would want to be using blockchain technology that uses an alternative to proof of work since it uses so much power. Proof of stake is a better, less energy-intensive option and is used by blockchain companies like Polygon. Ethereum is also in the process of transitioning to proof of stake, but as of now they are still using proof of work. You may also want to seek out an NFT platform that is conscious of their emissions and actively taking steps to mitigate their climate impact. For instance, the platform Nifty Gateway has committed to carbon offsetting. This means they are investing in projects like planting trees to make up for their carbon emissions. Do keep in mind that offsetting is not an exact science, though – it is difficult to ensure that these projects sufficiently counteract the effects of carbon emissions. Some might argue that carbon offsetting is more greenwashing than it is mitigation. Offsetting is better than nothing, but at the end of the day they are still emitting the same amount of greenhouse gases.
As such, there really is no perfect solution for NFTs at the moment – even the more climate friendly options still have significant carbon footprints. For now, it might be better for the planet to just stick to more traditional ways of buying and selling art. But if you are thinking this whole NFT thing sounds kind of interesting, here is yet another reason to keep pushing for clean and renewable energy!
Burnt Banksy. (2021). Authentic Banksy Art Burning Ceremony (NFT) [YouTube Video]. Retrieved from https://www.youtube.com/watch?v=C4wm-p_VFh0
FutureNow. (2021). NFT Explained: Why They’re Nifty and Terrible [YouTube Video]. Retrieved from https://www.youtube.com/watch?v=vspxztRONak
Gornstein, L. (2021, March 26). What is an NFT? The trendy blockchain technology explained. Retrieved May 19, 2021, from Cbsnews.com website: https://www.cbsnews.com/news/nft-nonfungible-token-blockchain-explained/
Patterson, D. (2021, March 5). Blockchain company buys and burns Banksy artwork to turn it into a digital original. Retrieved May 19, 2021, from Cbsnews.com website: https://www.cbsnews.com/news/banksy-nft-injective-destroy-art-digital-token/
Valentina Di Liscia. (2021, April 5). Does Carbon Offsetting Really Address the NFT Ecological Dilemma? Retrieved May 19, 2021, from Hyperallergic website: https://hyperallergic.com/634236/does-carbon-offsetting-really-address-the-nft-ecological-dilemma/
Wintermeyer, L. (2021, March 20). Climate-Positive Crypto Art: The Next Big Thing Or NFT Overreach? Forbes. Retrieved from https://www.forbes.com/sites/lawrencewintermeyer/2021/03/19/climate-positive-crypto-art-the-next-big-thing-or-nft-overreach/?sh=7ce2b365b0e6