How the NFT ecosystem is trying to lighten its energy footprint

Although some NFTs adopt a more virtuous approach from an ecological point of view, they are still far from being considered as responsible investment vehicles.

Like many assets, NFTs (“non-fungible tokens” in French) do not escape this green surge which consists in distinguishing sustainable and responsible investments from traditional investment vehicles. More and more companies aspire to surround the creation of their tokens with a set of environmentally friendly convictions to allow NFT holders to boost their investment portfolio while giving meaning to their investments.

But having a virtuous approach is one thing. Being able to qualify as a responsible investment is another. Especially since, on paper, there is not a single definition to explain what a green NFT is. It further brings together a set of approaches that aim to make NFT manufacturing processes more environmentally friendly.

An energy-intensive creative process

Unlike money for example, NFTs are not fungible, in the sense that they are unique and therefore not interchangeable. NFTs designate a certificate digital authenticity (or digital title) that is attached to a file digital. More specifically, NFTs take the form of tokens issued on a blockchain. Each NFT is unique and cannot be reproduced. The digital file alone is said to be “fungible”. The associated NFT is therefore non-fungible. NFTs are used in art, the luxury sector or for trading cards in sports.

However, what poses a problem with NFTs is not so much their composition, but much more their creation process. Like cryptocurrencies, NFTs suffer from an ecologically disastrous image. First, because cryptocurrencies are necessary for the purchase of NFTs and the latter already have a fairly heavy impact on the environment. To return to the example of bitcoin, its mining (its creation process) involves a considerable consumption of energy.

According to real-time estimates made by the University of Cambridge, bitcoin’s current annual electricity consumption is nearly 153 TWh. By way of comparison, the world demand for electricity in 2021 represented 26,444 Twh, according to the latest estimates from the International Energy Agency (IEA). Bitcoin would therefore weigh around 0.58% of global electricity consumption.

However, most NFTs are instead backed by the ethereum blockchain. This represents an annual electricity consumption of around 106 Twh, according to the estimates of the Digiconomist technology analysis site. That is around 0.4% of global electricity consumption. Of this amount, it is difficult to know exactly what the NFT ecosystem on ethereum represents in terms of electricity consumption (since many non-NFT projects also use the blockchain). But its environmental impact is far from negligible.

The mechanism for producing NFTs is indeed very energy-intensive. To transform a digital file into NFT, its holder must go through a step called “minting” in English (“frappe” in French). Typing is the process of copying a digital file onto a server and then creating a cryptographic token containing a link to this file on a blockchain. So between the creation and the sale of the NFT, the environmental bill can reach peaks.

According to the business magazine Quartz, printing a work of art would generate 2.5 kg of CO2 emissions, while creating and selling an NFT would require emissions 100 times greater. It is also difficult, under these conditions, to attach the notion of environmental responsibility to NFTs. But from there to curb the enthusiasm of investors for this support, it is not so.

A $40 billion market

In 2021, investors spent just about as much on digital artwork as they did on traditional art. The NFT market is today estimated at more than 40 billion dollars, according to cryptocurrency analysis group Chainalysis. And this, only with regard to the amounts paid on the contracts of the ethereum blockchain. This does not include other blockchains like Solana. According to Gauthier Zuppinger, the COO of NonFungible.com (a site specializing in data on the NFT market), the NFT market should even weigh 100 billion dollars by the end of the year.

By way of comparison, last year the world market for classical art was valued at just over 50 billion dollars, according to Art Basel. This shows the interest of investors and especially individuals in NFTs.

Faced with this surge, but also taking into account this increasingly significant desire of investors to give meaning to their investments, a certain number of players have taken the measure of the ecological problem to try to remedy it.

Less energy-consuming solutions

Among the options considered to green NFT support, there is one that consists of doing without the ethereum platform. The idea is to place the works on other platforms like Cardano. Which platform uses a different authentication system (technically “proof of stake” rather than “proof of work”). Which is much less energy consuming.

An initiative that above all allows us to take stock of the fact that a new generation of NFTs is emerging today which, because they are designed differently, are less harmful to the environment. Other observers believe, for their part, that it is up to blockchain developers to commit to trying to reduce the environmental footprint of their technology. Moreover, in 2022, the ethereum blockchain will experience a major evolution, moving from “proof of work” to “proof of stake”. According to an estimate by the ethereum foundationa non-profit organization in favor of the development of this crypto-asset, this should reduce the electricity consumption of Ethereum by more than 99.9%.

Added to this are other projects that focus on techniques that aim to limit the minting of new crypto-assets. A so-called “lazy” minting idea where an NFT would not be minted before being bought, for example, is beginning to emerge. This, again, would limit the environmental impact of these assets.

In the end, believing that we are investing responsibly by betting on NFTs is not relevant. To green an investment portfolio, it is better to avoid relying on these tokens. But as with other asset classes, the ecosystem is trying to improve.

Measures to green production processes are underway and could, given investors’ appetite for green investments, increase in the years to come.

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How the NFT ecosystem is trying to lighten its energy footprint


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