The term NFT, which stands for Non-Fungible Token, has intrigued many investors, gamers, and artists worldwide. Over the past decade, many games have surfaced. These games, some with support for NFT, have made a huge impact on the entertainment industry and influenced the gaming community. On top of such game titles, the popularity of platforms like Ethereum is on the rise. Ethereum allows individuals to create decentralized applications using fungible and non-fungible tokens. These applications run on blockchain technology and allow users access via their computers and smartphones. Now let’s dig into the environmental impact of NFT.
What are Non-fungible Tokens?
Non-fungible tokens are a type of cryptocurrency that is unique. This means that each token is different from any other token that exists. The tokens are similar to collectible items like stamps, coins, or paintings.
For example, you can buy a coffee mug with an image of Mies van der Rohe on it. This means that the two mugs are different and that only one coffee mug exists. Although intellectual property rights still protect these items, the protection doesn’t usually include ownership.
A non-fungible token is an asset that uses blockchain technology to certify ownership. NFTs are unique and specific, making them different from other cryptocurrencies. They cannot be replaced with similar NFTs because they are Non-Fungible. Owning any Bitcoin is the same as owning any other Bitcoin, but this is not the case with NFTs.
Many NFTs use the Ethereum blockchain to transfer ownership. When someone buys an NFT on the Ethereum platform, they send Ether to the current owner or the marketplace supporting the transaction.
In return, they receive the NFT in their Ethereum Wallet. Part of the payment includes the “gas fees” or service charges associated with the transfer. The collected expenses go to the owners of the network of computers used to confirm transactions on the blockchain, who use their resources to keep it running smoothly.
An NFT is like owning an artist’s original painting, while copies are more like owning a cheap poster or reprint. The original is valuable, while the copied version is of lesser value.
How Non-Fungible Tokens Work?
NFTs work by storing unique information on a blockchain, which is a type of digital ledger used in cryptocurrencies. This information includes distinct attributes or digital signatures, making each NFT different from others. Ownership of these digital assets can be bought, sold, and traded, with every transaction securely recorded on the blockchain.
Non-fungible tokens are not interchangeable like most other cryptocurrencies, and each one has its distinct value. These tokens are often described as “Collectible” or “Intangible”. They are also known as tokens without names, as they have no titles associated.
The first Non-Fungible Token was made in 2014 by Kevin McCoy and founded his project Monegraph. The platform aims to connect event professionals through the use of blockchain technology.
What’s the Environmental Impact of NFT?
Non-fungible tokens can harm the environment by creating more waste. Because each token is unique, it’s impossible to recycle them like traditional plastic or paper tokens. The value of the non-fungible tokens also raises questions about their sustainability. After all, it’s hard to say what someone might have valued a token if they have never used it.
When someone creates, buys, or sells an NFT through Ethereum, it leads to carbon emissions generated by the mining process. But it’s still debatable whether NFTs are significantly increasing emissions from Ethereum. It’s unknown if they’re just taking the blame for emissions that would have been generated by miners.
Some experts say Ethereum mining is causing an unnecessary spike in global emissions, while others say it’s adding to a problem we should be aware of and trying to solve.
According to Digital Mist’s Bitcoin Energy Consumption analysis, as of 2018, NFT mining generates 38 million tons of CO2 per year, which is considerably higher than produced by Slovakia. Another study by Nature.com revealed Bitcoin emissions could raise the Earth’s temperature by 2 degrees.
The following table explores the environmental impact of NFTs:
|A blockchain requires power to run and mine NFTs.
|The blockchain requires it to be kept updated, often replacing older parts with new ones. It leads to the disposal of obsolete technology, which generates e-waste.
|Larger server farms generate enough carbon to add to the carbon footprint of the planet.
|Building and maintaining a blockchain is resource-intensive, especially for hardware that might cause resource depletion.
Sustainability and Future of NFTs
The future of NFT looks bright, despite its environmental impact. These tokens are unique and have specific characteristics that make them different from one another. This makes them perfect for various applications, such as digital collectibles, identity verification, and more.
In the next few years, the success of non-fungible tokens can be measured by the projects that focus on the tokenization of everyday goods. The most important non-fungible token projects are those that focus on everyday goods. These include a wide array of digital goods, such as real-world items, loyalty points, JPEGs, art, or even data.
NFTs can be made more sustainable by reducing the number of transactions they need on each Blockchain. This solution can be introduced in the short term. However, most energy production is still obtained from fossil fuels.
Experts say cryptocurrencies and NFTs will significantly add to global warming without a substantial change. If that doesn’t occur, the raised temperature of 2 degrees can surge further in the coming years.
How to make NFTs environment-friendly?
While we have well established the negative impact of NFTs on our environment, it is something that can be rectified. We can try to make sure that NFTs are much more environmentally friendly with these methods:
1. Use renewable resources
We can always try to use renewable resources when minting NFT tokens instead of relying on traditional methods. Although this method does come with its own set of problems, like the availability of renewable energy, cost, infrastructure, and so on, it is still a much-needed positive step towards the betterment of the environment.
2. Innovate the blockchain technology
The next method entails changing and reinventing the underlying technology, which is the blockchain itself. A more energy-efficient blockchain will cut down on consumption and counteract its harmful effects on the environment. We can always use a proof-of-stake system to first lock up a certain amount of tokens before mining the next batch, if and when needed.
3. Use an additional layer
And lastly, we can always add a layer on top of the pre-existing blockchain to better facilitate transactions. By doing so, we can accumulate smaller batches of transactions into a big bundle and mine the tokens as one, watching economies of scale do their magic.
Advantages and Disadvantages of NFTs
NFTs and their uses come with their own set of advantages and disadvantages, which we have expressed below:
- NFTs can help improve market efficiency by converting a physical object into a digital commodity, thus opening newer and much more efficient channels of sale.
- They can be used to partially own an asset, much like stocks, allowing for a diverse investment.
- NFTs are considered far more secure than any other form of digital transaction, as they run on a blockchain that is not only transparent but also impossible to hack, alter, or delete.
- Any NFT token running on a blockchain has its own independent record, containing a chain of ownership and proof of authentication. Thus, NFTs are trustworthy.
- They have created a unique market for the trading of digital assets.
- They are also used to streamline a process with the help of smart contracts.
- They can be highly volatile under certain market conditions, which can also turn them into an illiquid asset as there are not that many traders of NFTs, making them somewhat of a niche.
- Unlike other digital currencies, NFTs do not generate any passive income. They are more like investments, where the only return is an appreciation in prices.
- NFTs can be used to perpetuate fraud, despite being a highly secure medium. People can illegally tokenize the assets of others and sell the NFTs.
- They are harmful to the environment, as a token requires huge computational power for mining purposes.
- They are speculative in nature and not a stable form of investment.