Are NFTs Bad for The Environment?

A common criticism of NFTs is that they’re bad for the environment. But, what exactly are NFTs and are they actually harmful to the environment? Simply put, Non-fungible tokens (NFTs) authenticate digital ownership of an asset attached by attaching it to a token on a blockchain.

NFTs make it possible for artists to release their work digitally without the risk of counterfeits. Ownership is tracked on a uniquely identifiable piece of data whose existence is permanently carved into the blockchain. Numerous blockchains exist, but NFTs are typically Ethereum blockchain-based tokens. Let’s take a deeper look into NFTs to see whether they are actually bad for the environment.

What Are NFTs?

A fungible item is a good that can easily replace or be replaced by another identical item. By definition, fungible items are mutually interchangeable. On the other hand, non-fungible items cannot be exchanged at an equivalent rate. Non-fungible items are not interchangeable because they have unique properties. 

For example, if you give a dollar and receive a dollar you’ll end up with the same monetary value because of the dollar bill’s fungible characteristics. Any dollar bill you receive will have the same value and function in the same manner. Fungible items can be exchanged easily because their value defines them rather than their unique properties.

However, if you were to give your cat to someone and receive their cat in exchange, your new cat would not have the same identical characteristics, looks or behaviors as your old cat. Your pet cat is unique with its own characteristics that make it different from every other cat on this planet. Therefore, your pet cat is non-fungible.

A token is a digital unit of cryptocurrency used as an asset or to represent a function on the blockchain. Therefore each NFT is a unique, one-of-a-kind digital item that exists on the blockchain. Currently, the vast majority of NFTs reside on the Ethereum blockchain. Because the Ethereum blockchain acts as a public digital ledger, it’s possible to prove who owns a given NFT at any moment in time and trace the history of prior ownership.

Remember that a blockchain is a distributed digital ledger that is spread across many nodes. These nodes verify transactions on the network. A decentralized blockchain has no third party, like a bank or a government, that oversees the validity of the transactions that occur on its network. Since anyone can submit information to be stored onto a blockchain, it is incredibly important that there are processes in place to make certain that the correct information is written to the network. 

Consensus protocols are a set of rules followed by the nodes to ensure that they come to an agreement on what the correct version of the distributed ledger is. These rules keep the network safe and functioning while verifying transactions on the network. Many different types of consensus mechanisms exist. The consensus mechanisms a blockchain chooses to implement heavily influence the environmental impact of the NFTs that run on its platform. 

Ethereum uses a consensus protocol known as proof of stake. Before The Ethereum Merge that occurred in September 2022, Ethereum was Proof of Work, the same consensus model as Bitcoin. Proof of Work is extremely power-hungry, which is why some people think NFTs are bad for the environment. In reality, miners would operate with or without NFTs, so even before The Merge, NFTs weren't necessarily bad for the environment. No that Ethereum is Proof of Stake, its energy usage has been reduced by 99.95%.

Proof of stake (PoS) blockchains are also verified in a decentralized way but without the energy-intensive computing. Instead of mining, PoS chains employ validators who stake digital assets to earn rewards. Validators stake or lock up money for the right to validate a chunk of blockchain interactions and earn the associated network fees. 

If validators are caught acting maliciously, they are penalized by losing some of the tokens they have staked. This process gets rid of the need for large amounts of computational processing which, in turn, vastly reduces emissions.

Are NFTs Bad For The Environment?

NFTs are a particular type of token offered on the Ethereum network. Therefore, the question of whether NFTs are bad for the environment is part of the question of whether cryptocurrencies in general are bad for the environment. 

The energy consumption of different blockchains depends heavily on the type of consensus protocols employed by the blockchain. Currently, the majority of NFTs use proof of stake blockchains and will most likely have no impact on the environment. It is also important to note that the Ethereum blockchain would still be running with or without NFTs. Ethereum with its smart contract has many, many more use cases than just transacting NFTs are still a relatively small portion of all Ethereum transactions.

The development of Layer 2 solutions could further reduce the environmental impact of Ethereum NFTs. These Layer 2 solutions attempt to store more information onto every Ethereum block by conducting transactions off of the Ethereum main net and then posting the final transactions onto the blockchain. This process can dramatically increase the throughput of the network, decreasing congestion and transaction fees. By storing more transactions per block, the negative environmental impact per transaction on the Ethereum blockchain is reduced. 

Furthermore, Ethereum NFTs could become more environmentally friendly through the use of renewable energy in powering the computers used to mine the cryptocurrency. 

Where To Buy NFTs

Since most NFTs are Ethereum-based tokens, most marketplaces accept only ETH tokens as payment. You can purchase Ethereum using U.S. dollars on cryptocurrency exchanges such as Coinbase Global Inc. (NASDAQ: COIN) and Gemini. Then you have to transfer these currencies from the exchange to a wallet such as MetaMask. 

From there, you connect your wallet to NFT marketplaces to purchase NFTs. Some popular NFT marketplaces include Opensea, Blur, and Foundation. If you’re looking for a complete guide to buying NFTs, check out our step-by-step guide on how to buy NFTs.

How To Store NFTs Safely

If you have a significant amount of money invested into NFTs, it might be worth your while to purchase a Ledger wallet. Ledger wallets are hardware cryptocurrency wallets, meaning they store access to your crypto on an external device.

Hardware wallets are a form of offline storage. A hardware wallet is a cryptocurrency wallet that stores the user's private keys on a secure device that isn’t connected to the internet. 

On the other hand, a software wallet is an application you download onto your computer or mobile device. Software wallets, which are connected to the internet, are often called hot wallets. Storing valuable cryptocurrencies and NFTs on hot wallets is risky because hot wallets are more exposed to scams, hacks and the leaking of your private keys.

The Ledger company was launched in 2014 by eight experts who had backgrounds in embedded security and cryptocurrencies. The company is headquartered in Paris, France. 

Are NFTs a Bubble or Here to Stay?

NFTs have real-world applications that provide value to many individuals and firms. Therefore, NFTs are not a fad or a bubble, but instead a form of contemporary tech that is here to stay. Just like the early days of the internet, however, not all applications of NFTs will succeed. Click here to learn more about the applications of NFTs.

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