If someone told you that they had spent 1 million dollars on a rare Andy Warhol painting, you would probably be impressed with their investment. It’s a piece by a well-respected artist, it’s high in demand, and maybe it has some sentimental value to the buyer. But if someone told you that they spent 1 million dollars on a photo of a cartoon monkey, you might be a little confused.
With the phenomenon of NFTs at its peak, headlines are filled with people talking about this new “art form”. You may be familiar with popular NFTs such as the Bored Ape Yacht Club, Nyan Cat, Jack Dorsey’s first-ever tweet, or even a “Lebron James Moment” video selling for over $35 million.
Looking at the prices of NFTs makes you wonder why anyone would spend such an exorbitant amount of money on a virtual token. The appeal comes from not only the unique aspect but the scarcity of ownership. While other people can view the token, only one person has a true owner’s certificate to it and over time it increases in value, just as a physical art piece does.
So, what exactly is an NFT?
The acronym stands for a non-fungible token, which is a unique unit of digital data with only one true, verifiable owner. NFTs can be drawings, videos, music, or even tweets.
NFTs are the latest evolution of fine art collecting and have helped many digital artists get discovered. In 2011, New York auction house Christie’s sold its first digital NFT-based artwork for over $69 million. The piece was called The First 5000 Days by digital artist Beeple, who posted artwork every day for over 13 years. This sale secured digital artistry’s place in high art and proved that if people were willing to spend millions of dollars on digital artwork, it was clear that NFTs were not going anywhere.
While this merge of cryptocurrency and art may seem like an exciting evolution, there is a huge ethical drawback. NFTs require tons of energy and leave a huge carbon footprint, only to be turned around and sometimes not even produce a profit. A single sale of an NFT uses as much energy as an average American household uses in 2.5 days. Some artists sell two tokens a day which estimates 175 MWh of power which is equivalent to 21 years of greenhouse gas emissions in one household.
While NFTs have introduced exciting discussions about the meaning and value of art, we can’t ignore the dire consequences it’s having on our environment. Artists like Jonie Lemercier have taken a step back to examine the carbon footprint they’re producing. In 2021 he announced that he would be taking down 6 of his artworks after realizing that their sale would consume more energy in 10 seconds than his entire art studio does in two years.
To break down why NFTs use so much energy, we have to first understand how they’re made. NFTs are mainly produced and sold on a blockchain called Ethereum. A blockchain is a decentralized digital platform in which records of cryptocurrency are contained and linked in a peer-to-peer network. After monitoring the usage of Ethereum, it was calculated that the platform pulls as much electricity as the entire country of Libya does in one year.
The “Proof of Work” Algorithm
On Ethereum’s specific blockchain, NFTs are uploaded and tokenized through a “proof of work” algorithm. The process of tokenizing a single NFT involves solving a series of puzzles, or blocks, that consume energy being pulled from dozens of computers at a time.
While tons of miners can be competing to solve the blocks, only the one with enough computing resources to solve it fast enough wins and is rewarded with a “gas fee”.ou can think of this fee as a tip you would give your server after dinner.
However, this results in a very energy inefficient process in which dozens of computers are being used, but only one will receive the reward. A single NFT transaction using this algorithm emits 150 kilograms of carbon dioxide which is 24,895 hours of watching YouTube.
While it may seem like NFTs are just a doomed, energy-intensive fad, there is hope. One solution is switching to the “proof of stake” algorithm, which uses cryptocurrency as a stake in the transaction. Whoever puts up the most cryptocurrency gets to solve the problem and is then rewarded for their work. This eliminates the race to be the first to mint the NFT and thus reduces the number of computers being used.
When comparing the two algorithms, an Ethereum transaction uses about 48kHw and an NFT consumes an estimated 75KwH in its lifetime. If crypto enthusiasts pushed for a switch to proof of stake platforms, the NFT marketplace could decrease its energy consumption by 99.99%.
NFTs provide a big advantage to small artists trying to gain recognition or generate income. However, in order for artists to sustainably participate in the marketplace, they have to consider other options besides Ethereum. While Ethereum is working on ETH2, other blockchains such as Algorand, Tezos, Polkadot, and Hedera Hashgraph using proof of stake algorithms are good alternatives. Sellers and platforms should also consider using their profit to donate to carbon-reducing projects and be transparent with their buyers about what they’re getting into.
The past few years have shown us that NFTs are not going away anytime soon and have proven to be a sound investment for artists. But as this technological phenomenon continues to innovate the art industry, it’s important we take care of our environment so we can ensure we’re here long enough to watch it thrive.