NFTs and Sustainability

When dealing with new and emerging technologies, we have a responsibility to evaluate the environmental impact they may have. In order to find ways to mitigate sustainability risks, we must first understand how these technologies work.

Cryptocurrencies and tokens representing digital assets (NFTs) are issued on a blockchain. A blockchain is simply a ledger that aggregates transaction data and ensures its integrity through miners (or validators). Miners get their name from the process required to verify such transactions - they provide the computing resources that verify transactions, and as a reward for their efforts and energy spent, they receive some cryptocurrency (effectively “mining” some new coins). Alone, each transaction isn’t very energy intensive, but with millions of transactions it can get quite costly. The problem faced is that mining uses a lot of power - and in a world where energy is scarce, we cannot afford to waste these resources. In addition to this, there is also a concern regarding the carbon footprint of cryptocurrency mining.

The Bitcoin blockchain is known for being the most energy intensive in the world. About 72 megatons of CO2 are produced annually as a byproduct of Bitcoin mining. This is comparable to the carbon footprint of Greece. You can click here and see that this trend has only gotten worse over time, prompting valid concerns that blockchain technology can pose a threat to a sustainable future.

Fortunately, NFTs and digital assets are not issued on the Bitcoin blockchain. Most NFTs are issued on the Ethereum blockchain, and until recently, in terms of energy use, it’s been a close second at 46 megatons of CO2 (comparable to the carbon footprint of Finland). A main difference between Bitcoin and Ethereum is that the latter allows users to create their own tokens, whether it’s coins (ERC-20) or NFTs (ERC-721). Ethereum’s energy consumption mainly comes in the form of mining two types of operations: creating tokens and transferring tokens (such as NFTs).

As the adoption of Ethereum for NFTs has exploded over the past couple of years, this high usage of the network has caused it to become clogged, increasing both the monetary and energy costs of transacting on it. The fees paid by users to issue and transfer tokens has increased over recent years as a result of increased blockchain use.

This increased activity prompted the blockchain community to seek a permanent solution, which involved transitioning the network from “Proof-of-Work” to “Proof-of-Stake”, essentially reducing the competition for validating transactions and fragmenting the network in a way that makes it consume less energy. This process, called “The Merge'', was completed on September 15th, 2022. The carbon footprint and energy usage of Ethereum is down 99.9% after the upgrade, and issuing an NFT on Ethereum is now comparable to a Google search.

Moving forward, Ethereum’s energy use will continue to decrease dramatically and network “gas” fees will drop as well, making the blockchain more appealing to environmentally friendly firms and low-cost NFT projects.

There are, however, several alternatives for those looking to issue NFTs in with sustainability in mind. Here are some examples, along with their energy consumption:

• Flow: Dapper’s blockchain is known for consuming significantly less energy than its popular counterparts (as little as 0.02% of Ethereum’s previous, pre-merge consumption). Deloitte conducted a research study on this chain, stating that “based on our analysis and survey of the network, we discovered Flow uses significantly less energy than reported by other protocols.” This blockchain is focused on NFT issuance and management, so it is a great choice for brands looking to mint tokens sustainably. Here is a link that details Flow’s consumption.
• Polygon: this blockchain first emerged as a decentralized Ethereum scaling platform, which enables users to transact on Ethereum while paying lower gas fees. Polygon prides itself in being a more sustainable solution than other chains, with a carbon footprint nearly 510 times smaller than Ethereum’s (pre-merge).
• Solana: this is the fastest blockchain in the world and the fastest growing ecosystem in crypto, with thousands of projects spanning DeFi, NFTs, Web3 and more. Its carbon footprint is even lower than Polygon’s, at 2,900 tons of CO2 per year. Although this blockchain is separate from the Ethereum ecosystem (which is currently the largest for NFTs), it is growing steadily and is supported by the world’s largest NFT marketplace, Opensea.

Blockchain technology comes with many benefits, and brands benefit tremendously from joining the space early and delivering new value to their customer base. But with any new technology, we must be aware of its environmental impact. This is why there are several blockchains that provide an environmentally-friendly token minting ecosystem, enabling brands to remain eco-friendly when they enter the web3 world.

To learn more about the sustainability of digital assets, check out the following clip featuring Mickey Maher from Dapper Labs.