Exploring the uncertain future of NFT sustainability

Three handmade glass blocks glisten against a forest green background. Each one is filled with various items — one is filled with dark brown dirt, another with what appears to be shredded paper and the last is filled with light-colored sand.

These glass blocks aren’t just an art installation in a modern art museum. They are part of an NFT project by artist and activist Kyle McDonald called Amends.

His mission with this project is to bring awareness to not only the impact of NFTs and crypto on the environment, but actually attempt to remove all past emissions created by the top three NFT exchanges — OpenSea, Rarible, and Foundation.

Each work is listed between $500,000 to $16 million. The prices reflect the cost of offsetting the carbon emissions produced by NFT sales on these individual marketplaces.

More: How to make money from NFTs

These blocks exist as both NFTs and as physical glass sculptures. The materials inside of each one represent three companies that McDonald is working with to counteract the emissions that have been created from NFTs sold on the platforms. Each material is based on the carbon removal process used by the companies.

Amends for OpenSea/Kyle McDonald

OpenSea is represented by olivine, a common mineral found on Earth’s subsurface that Project Vesta is using to help capture CO2 and deacidify the ocean. Rarible’s cube is filled with carbon-rich soil created by farmers working with the carbon removal marketplace Nori. And the glass block for Foundation is filled with shredded refrigerant cylinders found and destroyed by Tradewater.

“My idea with this project was basically to create objects that correspond to the emissions of each of these marketplaces. And then put those objects on sale for the price that it will actually cost to offset all those emissions,” he says.

Why NFTs aren't environmentally-friendly (yet)

The Earth’s temperature has risen by 1.9 degrees Fahrenheit since 1880%20since%201880.), according to NASA. Greenhouse gasses are thought to be one of the largest contributing factors to the rise in the Earth’s temperature. This has caused an increase in droughts, impacting the amount of water and food the world is able to grow.

The crypto industry has contributed to these emissions, with some estimates that Bitcoin alone devoured as much energy as the Netherlands in 2019. As we'll see, NFTs require a lot of energy to mint as well. And that energy generally relies on the burning of fossil fuels, which in turn contributes to global warming.

A lot of it has to do with how blockchain technology works. In order for a transaction to be confirmed under the proof-of-work (PoW) method, a mathematical equation has to be solved by a number of computers. Due to the scale of these blockchains, it takes a lot of computer processing power to confirm just one transaction.

That’s expected to change now that the Ethereum Merge has been completed. Ethereum 2.0 processes its transactions through a method called “Proof of Stake” (PoS) that uses much less energy.

Source: Kyle McDonald

“[The] technology is very new and there isn't much practice around it. I think Ethereum 2.0 will solve it all,” said Yam Ben Adiva, founder and CEO of NFT and metaverse platform Dissrup.

Jenny Ta, CEO of the Web3 holding company HODL Assets, agrees.

“Energy consumption will drop by 99.95%,” she says. “The only solution for almost all blockchains is PoS over PoW,” she says.

But for McDonald, it’s not just about the future, but how much energy was created in the past. And while his project includes both a physical and digital item, he won’t send the physical item to the future buyer or buyers unless they agree to burn — that is, effectively delete — the NFT version first.

“I wanted to disconnect between the digital world and the physical world,” he says.

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What is NFT burning?

Once an NFT is made, it’s impossible to get rid of it. It becomes a permanent part of the blockchain it's part of, such as Ethereum.

Instead, a collector can “burn” the NFT, which deletes the NFT from the collector’s address or removes it from circulation.

When an NFT is burned, it’s transferred to an NFT burn address. This is a cryptocurrency address that's owned by no one and that no one can gain control over. It’s basically an eternal trash can for NFTs.

On Ethereum, the official burn address is:

0x000000000000000000000000000000000000dEaD

While the NFT will still exist on the blockchain, it’s lost forever and cannot be recovered.

Marketplaces like OpenSea and Rarible tend to receive 5% to 15% out of every NFT sale, which is why McDonald wanted to put the spotlight on them and away from artists, who often don’t make much money from NFTs.

“I decided to put more of the pressure and emphasis on the marketplaces which are kind of profiting way more than the artists are from this kind of activity,” McDonald says.

McDonald has been making interactive and immersive art installations for the past 12 years. He got involved in the NFT space a few years ago when it was just in its infancy. At the time, discussions about climate change were often framed as a matter of personal responsibility, and that extended to the world of NFTs.

But for McDonald, the fault lies beyond the artists or individual investors. It’s a systemic problem, he says.

Proof-of-stake vs. proof-of-work

In order to truly understand why NFTs use as much energy as they do, we first need to understand the technology behind them.

NFTs, like cryptocurrencies, are based on blockchain technology. It works like a distributed ledger composed of digital numbers on a computer. Each computer connected to the blockchain contains the same ledger, which is continuously synchronized so that all transactions in the blockchain are tracked and recorded. Each transaction then becomes a “block” of the blockchain. A block will include strings of data representing wallet numbers, timestamps, and the verification of the transaction.

As the technology advanced, some blockchains found a way to record other types of information, including smart transactions. Soon, users could participate in a legally binding contract that shows that someone owns something, like a piece of art, or even property. But in order for a transaction to be completed, it needs to be proven.

Unlike fiat currency, cryptocurrencies and NFTs based on a blockchain do not have a centralized gatekeeper to verify that the information is accurate. Instead, it relies on a number of participants to confirm, or validate, the transaction and add it to the blockchain.

This proof-of-transaction mechanism is where the issue of consumption and climate change comes in. There are a few ways of proving ownership but the most common one, proof-of-work, is also the one that takes up the most energy.

How proof-of-work works

With proof-of-work, a group of miners will compete against each other to complete complicated math equations. The first one to solve the puzzle gets to add the newest batch of information to the blockchain ledger. The miners then receive a portion of the transaction, after it is verified by other participants in the network.

Solving these equations takes up a lot of energy, and even requires specific mining computers that can handle the more bandwidth needed.

Because of the amount of energy used in a proof-of-work system, some major blockchains are slowly turning to other ways to make blockchain work. One is to use proof-of-stake to validate their transactions, which Ta says may reduce energy consumption by up to 99%. This is what Ethereum 2.0 is based on.

More: What is blockchain technology and how is it related to investing?

How proof-of-stake works

With proof-of-stake, validators lock up crypto tokens in a pool on the blockchain by putting their crypto in a smart contract on the blockchain. In exchange, they validate new transactions for a small reward. If they improperly validate bad data, they lose some or all of their stake through a crypto burn.

In other words, if the validators don’t do their job, they won’t get paid and the crypto can’t be accessed by anyone. The validators also have to back up the transaction with their own crypto.

Because of the simplicity of proof-of-stake, there's no need to solve complex math problems or buy extensive computing systems.

That’s one reason Ethereum chose to move to proof-of stake. Of course, Ethereum isn’t the only blockchain that can be used to create NFTs — nor is it the only one that uses proof-of-stake.

Solana, for example, claims to use less energy than three Google searches — and far less energy than the old Ethereum. Another crypto touted as being eco-friendly is Tezos, which has increased its energy efficiency over the last few years.

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So how much energy does it take to make an NFT?

NFTs, like crypto, take up a lot of energy. Just how much is debated, as the data is hard to find and quantify. But according to Digiconomist, the Ethereum network, which includes both NFTs and the ether token, has an annual carbon footprint roughly comparable to that of Denmark.

However, there’s no exact figure on how much energy is being consumed when an NFT is minted. While NFTs make up the highest share on the Ethereum network, they aren’t the only transactions made using the blockchain.

Source: CoinMetrics

A second problem is that even after a piece of crypto art is created and minted, it continues to produce more energy every time it changes hands. This means popular NFTs like CryptoPunks are likely creating more CO2 than a less popular piece.

It’s the accumulation of carbon emissions that takes place well after the piece is minted that doesn’t sit well with McDonald.

“You can think of that rate as being kind of similar to a few coal power plants, which normally would be supporting millions of people,” he says. “But in the case of Ethereum, we really have like, maybe almost a million users — and definitely not that many people making NFTs.”

What people don’t realize is that while crypto art uses up a lot of energy, it’s only being used by a small percentage of the population, McDonald says. He estimates that OpenSea has released about 170,000 tonnes of CO2.

“I don't think people realize it's the entire internet’s worth of power,” he adds.

Comparing the energy consumption of Ethereum to other sectors

Enthusiasts say that NFT environmental impacts can be mitigated

One way for investors and creators to offset their NFT carbon footprint is to use carbon offsetting or removal services, some NFT experts say.

Nori, one of the companies that McDonald is working with, does just that.

They facilitate carbon removal by working with farmers who sequester carbon from the atmosphere in their soil. The company then sells the removed amount of Co2 to buyers who want to reduce the impact of their consumption. Nori partners with other NFT applications, so someone who purchases an Ethereum NFT can click a box and easily purchase one tonne of removed Co2 to counter the carbon emissions created by their NFT.

Amends for Rarible/Kyle McDonald

“If people are truly concerned about carbon emissions, then they could just remove that carbon through a service like Nori or something else,” said Paul Gambill, CEO of Nori.

They aren’t the only company that works to offset carbon in the atmosphere. A number of other companies focus on capturing and sequestering carbon. Tradewater and Project Vesta are the other offset companies that artist McDonald has partnered with, but there are many others.

The purchase of carbon offsets don’t just help counteract individuals’ carbon footprints, but are heavily relied on by countries around the world to stay on track with their emissions targets.

There have been moves to make the industry more eco-friendly, most notably the Merge to Ethereum 2.0. However, for McDonald, it isn’t enough.

“We still have all of this historical debt of all the emissions that have been produced by Ethereum,” said McDonald. “What are we going to do about that? And who's responsible for it?”

Another way for NFT creators to use less energy is to other blockchains that are more energy-efficient and for investors to invest in NFTs created on those blockchains.

“NFT creators will improve their approach to energy consumption as soon as they start to use other blockchains – such as Avalanche, one of the most energy-efficient of the largest blockchain networks – to drop their NFT collections,” says Ta.

Critics aren't convinced

While many in the crypto art sector are hopeful that the energy issue will get solved, others aren’t so sure.

“I just think it's a waste of energy,” says Ed Mierzwinski, senior director at U.S. Public Interest Research Group (PIRG). “And it's a metaphor for what's wrong with our approach to the climate crisis. We should be able to stop the mining of cryptocurrencies but under the greater fool theory, there's always going to be somebody to buy more of it.”

His biggest concern is for the average retail investor. While NFTs may be needed in the future to access the metaverse, he doesn’t advise investing in them or in crypto either.

Many artists have also spoken against NFTs, citing the environmental impact as well as the lack of transparency from marketplaces.

Jenny Ta agrees that marketplaces are not transparent enough regarding their energy consumption. A lot of that is because they depend on these blockchains to conduct their business. For example, she says, OpenSea uses the Ethereum blockchain for at least 85% of its NFT transactions, but Ethereum doesn’t always pass on the data to these marketplaces or users.

Amends for Foundation/Kyle McDonald

“And it isn’t only NFT platforms,” she adds. “The entire crypto space lacks transparency, including lending platforms like Nexo, BlockFi, and Hodlnaut. No doubt NFT platforms can do much more to be transparent, but it’s difficult when you rely on the resources of blockchains that are not your own.”

French artist Joanie Lemercier has written extensively about his concern that crypto infrastructure is based mostly on fossil fuels. His work calls for greater transparency and keeping unnecessary transactions off the blockchain. He also advocates using technology like Layer-2,a blockchain protocol that can help improve the scalability and efficiency of crypto.

While carbon offsets are often touted as a solution to rising greenhouse gases, their actual impact is unclear. The industry is rife with greenwashing, which makes companies look a lot more eco-friendly than they actually are.

Offsets are not a perfect science — it’s hard to hold companies accountable for how much carbon they say they’re offsetting. And worse, writes Lemercier, companies use offsets as a means to justify their consumption.

“It will take a tree 12 years to offset the minting of a single NFT,” he writes. “A tree planted can only capture about 60 kg of CO2 over the first 10 years. Those trees are likely to be sold and cut before they capture any significant amount of CO2,” he wrote.

The future of NFT sustainability is filled with uncertainty

“It will take a tree 12 years to offset the minting of a single NFT. A tree planted can only capture about 60 kg of CO2 over the first 10 years. Those trees are likely to be sold and cut before they capture any significant amount of CO2.”

Climate change is a serious issue and one that we are quickly running out of time to solve.

Using a more energy-efficient blockchain to create crypto art is a step in the right direction. But as McDonald is trying to illustrate in his Amends project, the industry has to be held accountable for the damage they’ve already done. And without transparency from marketplaces, it’s hard to know just how much emissions are being produced from minting NFTs.

Whether Ethereum 2.0 will solve the energy consumption issue for investors is yet to be seen, especially as crypto art grows in popularity.

Still, for NFT investors concerned about the environmental impact, there are steps they can take to try to reduce that impact. They include investing in crypto art created on more environmentally-friendly blockchains, pressuring marketplaces for more transparency, and investing in carbon reduction programs to offset their NFT purchases.