I have long had a fascination with emerging technologies, specifically how they can positively influence society and people. One such emerging technology trend is NFT (non-fungible tokens). The implications this technology has to impact the creative community across the world are tremendous. As with any emerging technology, there is much to consider. In the case of NFT’s many are discussing their impact on the environment.      

I feel that NFT’s is an inspiring space. A little history on myself, my family is mainly made up of either artists or engineers. I took the engineering path. However, my brother followed in my grandfather’s footsteps to become an artist. I know first hand that it is always a challenge for artists to get the total market value of their creation, give the potential of a poor distribution channel for selling their art, or the possibility of theft and fraud. I feel that the ability to essentially wrap an artistic creation (whether it is art, music, virtual worlds, a section of code, a tweet, or so many other things) with a smart contract giving financial control to the artist.    

There are pros and cons with any technology, especially with a nascent technology like NFT’s, where the state and future of the technology are evolving. There has been much excitement about the opportunities with NFT’s – whether it is the sale of twitters first tweet for $2.9 million or Beeple’s artwork sold at Christie’s for $69 million. There is tremendous excitement about NFT’s future. However, there are also some concerns. This most talked-about the situation with NFT’s is how it impacts the environment. In this blog post, I want to discuss what we know today and the future direction for NFT’s impact on the environment.  

Let me first address some technical aspects of NFT’s and why there are environmental concerns.  

What is an NFT?

NFT stands for “non-fungible token.” It allows you to buy and sell digital items (or physical items with a digital attribute) while keeping track of ownership and other contractual features via a blockchain.

What are the environmental concerns?

Many NFT marketplaces use Ethereum, and like many cryptocurrencies (like Bitcoin), they utilize a system called “proof of work.” Since there is no central authority with cryptocurrency, the Proof of Work system enables transaction verification on a decentralized ledger. Essentially a miner solves a complex puzzle (requiring a lot of computing power and electricity), and in return, the miner receives an award. The process is very energy inefficient on purpose to raise the stakes for someone who wants to tamper with the ledger inappropriately. In addition, as the blockchain gets greater use, the verification process takes more effort. As a result, “proof of work” type cryptocurrencies consume significant energy with associated environmental impact.

How big is the problem?

There are many open questions related to how NFT’s are impacting the environment. Indeed, the environmental impact that “proof of work” type cryptocurrencies have on the environment is not unique to the emerging NFT market. NFT essentially utilizes a system that already exists and is used broadly on blockchain-type applications outside of NFT’s. However, it is clear that if NFT grows to the level many anticipate, there will be an entirely new set of buyers and sellers transacting, driving up energy usage and the associated climate impact. 

Addressing the issue

There are several ways to address the issue of “proof of work” as it relates to environmental impact while at the same time keeping the blockchain transaction verified and secure.  

“Proof of stake” instead of “proof of work”

Unlike “proof of work” systems, “proof of stake” requires users to provide some ‘stake’ in the game to limit bad behavior. Miners essentially would have to give some of their tokens to prove they want to keep the ledger accurate. They would get penalized by losing their tokens if they misbehave. Other forms of “proof of stake” utilize a voting system to provide the proper form of checks and balances. “Proof of stake” type system removes the need for inefficient energy consumption and associated environmental impact that “proof of work” entails.  

Today there are several cryptocurrencies and associated marketplaces that leverage the “proof of stake” model today. For example, hic et Nunc (HEN) NFT marketplace utilized the Tezos coin to leverage “proof of stake” for transaction verification. 

Etherium goes to Proof of stake. 

For many years, Ethereum has had plans to move to “proof of stake”, which would essentially eliminate the environmental issue. However, Ethereum has to bring its entire ecosystem along and agree to this significant change is the underlying approach. If not done correctly, Etheremu risks fracturing into multiple chains.  

There have also been discussions of finding more efficient ways to perform the “proof of work” process, which would be less energy-intensive by enabling some of the activities verification outside of the main network utilizing a parallel network that is more efficient. 

Overall, the NFT market is fascinating. The opportunity to help artists get the fair share of profits associated will have incredibly positive impacts on creators lively hoods. However, no technology is without issues, and NFT’s are no different. NFT’s, as with any application of “proof of work” blockchain technology can have a negative environmental impact. However, this issue has gained awareness, and there are multiple approaches to address this issue. More environmentally secure tokens and a movement to “proof of stake” systems will go a long way to address the environmental problems with NFT and laying the foundation for a bright future for NFTs.