NFTs, Crypto, and the Environment: A Dangerous Mix?
Updated: Mar 25, 2022
Non-Fungible Tokens (NFTs)
Non-fungible token, or popularly known as NFT, is a type of digital material first invented back in 2014. It is linked to a blockchain, which is a type of digital database that underpins cryptocurrencies like Bitcoin and Ethereum. Because of their distinct qualities, NFTs cannot be substituted for other objects, can not be copied, and it solely belongs to one person and that person only. GIFs, tweets, virtual trade cards, actual object images, video game skins, virtual real estate, and more are all examples of digital artwork that can be bought and sold via NFT.
Recently in Indonesia, a guy known as Ghozali has become a trending topic as he successfully sold his selfie images as NFT assets in OpenSea, a marketplace for NFT, fetching billions of rupiah. All of this began with Ghozali's curiosity to sell his selfie photo collection as an NFT asset on the OpenSea marketplace. Ghozali now owns 933 NFT properties available on the OpenSea, in which the asset is a collection of Ghozali selfies taken every day starting from 2017 to 2021, from when he was 17 to 22 years old.. Ghozali's most valuable NFT asset right now is "Ghozali Ghozalu #528," which is worth 66,346 ETH or IDR 3.1 trillion.
So, how can a single selfie picture be worth so much? Well, the answer lies within Ghozali’s dedication in taking selfies throughout those years without missing a single day, which adds a sense of uniqueness in his NFTs. NFTs that are unique and exceptional, as well as those that offer additional value, just like Ghozali, usually command a premium price. Furthermore, as the price goes higher, the more interesting it will be for the public’s eyes, so it's up for grabs. Other than that, collectors of high-priced NFTs can also be offered NFTs with value in it.
A cryptocurrency is a type of digital asset that is based on a network that spans a huge number of computers. Cryptocurrencies are able to exist outside of the control of governments and central authorities because of their decentralized structure. Thousands of cryptocurrencies are currently available on the market up until this day. The most well-known and valued cryptocurrency is Bitcoin, which was conceived and introduced to the public back in 2008 by an unknown individual who claimed to be Satoshi Nakamoto through a white paper. As the demand for Bitcoin continues to grow, this triggers the price to become higher and higher. Currently, one bitcoin costs 532,700,885.10 IDR or around 37,046.50 USD. Following Bitcoin's breakthrough, plenty of new cryptocurrencies known as "altcoins" have emerged. Some of them are Solana, Litecoin, Ethereum, Cardano, and EOS.
Can NFT and Cryptocurrencies be a threat to the environment?
NFTs and cryptocurrencies are both used in the digital world. So, what sort of effect do they have on the environment? To begin, NFTs are mostly purchased and sold on Ethereum-based markets such as Nifty Gateway, MarkersPlace, and SuperRare. Ethereum, like most major cryptocurrencies, is based on a technique known as "proof of work," which apparently consumes a huge amount of energy. Proof of work is the consensus mechanism that allows the decentralized Ethereum network to agree on account balances and transaction order, ensuring that users do not double-spend their tokens and keeping their financial data secure. However, to achieve that high level of security for the buyers, the proof of work system forces users to use massive amounts of electricity in order to solve puzzles through a process called “mining”. Solving the puzzles allows users, or "miners," to add a new "block" of validated transactions to the blockchain, a decentralized record. As a reward, the miner will then receive fresh tokens or transaction fees.
This process involves a lot of energy because many avid miners use high-tech machines to mine cryptocurrency. One example is the sale of “cryptomining rigs”, which are basically personalized computers equipped with the highest quality of CPU, GPU, motherboard, RAM, and storage. These computers not only take up a lot of electricity, but the manufacturing of all these computer parts also contribute to cryptomining’s carbon footprints.
Based on the data provided by Statista and Digiconomist, one Ethereum consumption uses 238.22 kWh, which is equivalent to around 150,000 VISA transactions and comparable to the average U.S. household energy use over 8.85 days. It is also estimated that each year, Ethereum consumes around 100 TWh per year, which is similar to the Netherlands’s energy consumption. Not only in terms of electricity or energy usage, Ethereum consumption also produces 52.82 Mt of carbon dioxide emission each year, which is similar to Sweden’s carbon footprint. That massive carbon footprint might lead to even more major environmental issues, such as climate change, sea level rise, extreme weather, human health issues, and so on. Furthermore, because of their growing popularity, NFTs and cryptocurrencies are gaining more and more users every day. This could pose a greater risk to the environment. So, what is the solution to this problem?
Can NFTs and Cryptocurrencies be more sustainable and environmentally friendly?
As mentioned above, the large electricity consumption of NFTs is due to the whole proof of work system. Instead of proof of work, a proof of stake (PoS) chain is currently being created to provide Ethereum a greener future and greater sustainability. In the proof of stake system, arbitrary puzzle-solving is unneeded. By eliminating puzzle-solving, the amount of energy necessary to secure the network can be significantly reduced. Algorand, Tezos, Polkadot, Hedera Hashgraph are some of the examples of the proof of stake network. Tim Beiko, Ethereum protocol developers’ coordinator stated that using proof of stake as an alternative would lower Ethereum's environmental impact by 99 percent. Other than that, the mining process can be directed to using renewable or clean energy. A good news, Currently, some companies are already selective about where they mine coins, preferring regions that use renewable energy sources or have extra capacity. Another viable solution is to minimize carbon emissions by donating profits obtained from NFT to carbon credits or contributing to the ecological footprint. Lastly, as the popularity of NFTs continues to arise, so does the rise of the earth’s temperature. Hence, environmentally sustainable NFTs become a major mission for all investors and creators around the world to fulfill.
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