NFTs and the Environment: What You Need to Know

Non-fungible tokens (NFTs) and ordinals are assets that are tokenized using a blockchain. Because blockchains use energy, NFTs can contribute to greenhouse gas emissions and climate change through their production, exchange, and storage.

Learn more about NFTs and ordinals, their environmental impacts, and steps users can take to be more aware.

How NFTs Impact the Environment

NFTs are generally built on Ethereum or blockchains similar to it. Ordinals are similar to NFTs but created on the Bitcoin blockchain or blockchains like it.

Depending on the programming and design of the blockchain on which these NFTs and ordinals reside, these transactions can consume significant amounts of energy.

Energy consumption occurs when an NFT is minted, bought, sold, and stored. Here's a look at each of these stages of the NFT lifecycle:

• NFT is minted: The NFT creator uploads an image or other digital asset to a blockchain (including its metadata), which tokenizes and stores the NFT's information on the blockchain. Tokenization is the process of generating a public key and a private key to access a cryptocurrency wallet. The NFT is minted through this process.
• NFT is listed: Once the NFT is minted on a blockchain, the creator can list it for viewing on an NFT marketplace at a set or auction price.
• NFT is sold/purchased: When the NFT is purchased, a blockchain transaction is initiated. The blockchain network goes to work validating the transaction and transferring ownership of the NFT to the new owner.
• Storage: The asset—a file, image, and so on—is stored off-chain, such as on the interplanetary file system (IPFS).

Non-Transactional Energy Use

NFTs also require storage, even if there isn't transaction activity. These tokenized assets are generally digital assets such as documents, images, and videos, all requiring digital space. Blockchains themselves are not equipped to store these assets, so only the tokens (alphanumeric sequences that are the result of hashed data) are stored on the blockchains. The assets are stored elsewhere, such as on the interplanetary file system (IPFS). The IPFS was created as a decentralized and distributed storage system for platforms that need it, like blockchains.

Data storage requires energy. As the number of NFTs grows, the overall energy consumption and storage space of NFTs are likely to increase.

Electronic Waste

In addition to energy consumption, electronic waste (e-waste) is an issue. If a blockchain relies on mining, like Bitcoin does, hardware is continuously improved and upgraded.

Mining typically uses hardware such as central processing units (CPUs), graphics processing units (GPUs), and application-specific integrated circuits (ASICs) to solve increasingly difficult cryptographic problems. This hardware can quickly become outdated—it's also subject to 24-hour 100% usage, which wears electronic circuits out. Updating and replacing faulty equipment creates tons of e-waste.

E-waste contains hazardous materials, such as lead, mercury, and cadmium, which can leach into the environment if improperly disposed of. Additionally, the processing of e-waste is energy-intensive and can contribute to greenhouse gas emissions. Hardware that isn't recycled ends up in landfills, releasing toxins into the environment.

Improving the Sustainability of NFTs

Given the potential environmental impact of NFTs, there is a movement to develop more sustainable blockchain and NFT protocols. Additionally, artists, buyers, and sellers can choose to use NFT platforms and blockchains that use less energy. These would likely include less energy-intensive consensus mechanisms and, to a point, blockchains with hotspots in areas that use renewable energy sources.

To determine blockchain sustainability, you must inspect where nodes are located and determine the significant energy sources in those areas. For example, the Ethereum network has 2,900 nodes (the most) in the U.S., the energy generation of which is 79% from petroleum, natural gas, and coal. The U.S. also has about 1,600 reachable Bitcoin nodes. It's safe to say that platforms using a blockchain with a significant presence in the U.S. are not as energy efficient as they could be. However, Ethereum uses less energy, so in the U.S. it's a better choice.

Renewable Energy

Blockchain mining and hardware recycling often rely on burning fossil fuels, leaving a significant environmental footprint. Renewable energy sources, such as solar energy, wind energy, hydroelectric energy, geothermal energy, and biomass energy, offer eco-friendly alternatives to power these operations.

• Solar Energy: Solar panels are installed to capture energy from sunlight, which is then converted into electricity.
• Wind Energy: Wind turbines erected in windy areas can generate electricity from the kinetic energy of the wind.
• Hydroelectric Energy: Hydroelectric power is taken from water sources, such as rivers or dams.
• Geothermal Energy: Geothermal power comes from active geothermal resources, such as volcanoes or hot springs. 
• Biomass Energy: Biomass energy consists of organic materials. Plants, crops, and agricultural waste can be burned to generate heat or converted into biofuels.

Consensus Mechanisms

Shifting from Proof-of-Work (PoW), the consensus mechanism for Bitcoin and other mining-based blockchains, to more energy-efficient ones, such as Ethereum's Proof-of-Stake (PoS) model, can significantly reduce the environmental impact NFTs have. PoS eliminates the competitive mining and reward process altogether.

PoS consumes significantly less energy than PoW because PoS does not require miners to expend energy in a competition to solve a cryptographic problem. Instead, PoS uses a system called staking, where validators who have staked cryptocurrency—basically locking it from being used—on the network are randomly chosen to verify transactions and propose new blocks.

Ethereum is expected to consume about 5.36 gigawatt hours of electricity annually, while Bitcoin is expected to consume about 173.19 terawatt hours annually, more than Poland and Egypt.

Some notable PoS blockchains include:

• Ethereum: The Ethereum blockchain is used for almost everything from simple token exchanges to NFTs, smart contracts, decentralized apps (dApps), and more. The NFT marketplace OpenSea is built on Ethereum.
• Solana: The Solana blockchain supports a broad range of NFT marketplaces, including Magic Eden, Solanart, and Rabbit Hole.
• Algorand: The Algorand blockchain supports Aorist, an NFT blockchain, and several other NFT marketplaces.
• Cardano: Hosts some NFT marketplaces like Galaxy of Art.
• Tezos: The Tezos blockchain hosts several NFT marketplaces, such as Rarible, which operates an NFT marketplace and supports the artistic creation of NFTs.

The Bottom Line

NFTs leave a carbon footprint at every stage of their existence, but conscious choices and prioritizing eco-friendly practices in how they are created, traded, and stored can offset their potential impact on the environment.

Cryptocurrency developers can reduce NFT energy consumption by improving or switching to less energy-intensive blockchain consensus mechanisms. NFT minting and hosting platforms can use blockchains that don't require large amounts of energy.

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