Non fungible tokens (NFTs) have been generating massive media buzz the past few months, and it’s easy to see why. From the $68 million Beeple’s record-breaking auction, at Christies to Kenny Schatchter, auctioning his grandma away as an NFT, the last one year will likely go down in history as the golden age of digital arts.
“I found myself repeatedly stating that everyone and their grandmother is minting NFTs now, or wants to—which inspired the idea to upload my grandma and mint her on OpenSea. In no time I got three offers, caved, and sold her for a few grand. Maybe I let her go too cheaply.”Kenny Schatcher
For many artists the age of NFTs despite its few setbacks is still the best time to be alive. But in the midst of this excitement are concerns about the carbon emission that networks like Ethereum and Bitcoin indirectly account for. And while this may seem trivial at first sight, anyone however aware and concerned about the environmental impact of carbon emissions will understand what issues we have in our hands.
Also, the ethereum network has had a huge leap in traffic following the rise of decentralized financial (DeFi) solutions and NFTs. In this period the electricity required to run the network has also taken a jump. That being said, let’s look at how the blockchain space came to be such an energy beast.
Carbon foot-print and Proof of Work (PoW)
The million-dollar blockchain question is— how much energy is required for Proof of Work (PoW) operated blockchain networks to stay active? Before we continue let’s understand what PoW is.
Proof of work is the consensuship used by pioneering networks like Ethereum and Bitcoin to validate transactions and include them in the blockchain. The way PoW achieves its goal of validations is that users on the network called ‘miners’ compete to be the first to validate transactions before being added into the blockchain.
The terms of the competition is that on average every ten minutes transactions are bundled up randomly across the network into what is called a block. And every block has a computational problem that must be solved before it is included into the blockchain. This computational problem changes from time to time depending on the blockchain. Bitcoins change every 2 weeks.
The idea is that miners compete to solve the problem with their mining computer, which in fact has evolved into a supercomputer, due to the increasing difficulty of this problem. Hence, a lot of electricity is required by these miners competing to win.
To understand the scale of how many miners we are talking about, for Bitcon there are an average of 10,000 mining nodes on the network in this competition, 24 hours a day, 7 days a week. The figures are also similar for Ethereum, resulting in the high energy demand as a result of what some PoW critics call unnecessary.
The incentive with this is that the miner who wins the competition gets what is called the block reward. This is more like the prize for winning the competition with every block. At the time of writing, the reward for Bitcoin is 6.25 BTC, worth over $300K and about 2.7 ETH on Ethereum which is somewhere around $7k, at the time of writing.
Because of this, competition Proof of work costs a lot of energy to generate a valid result, it’s easy to see why it has a large carbon footprint. When it comes to Bitcoin, the technology is particularly energy demanding, and that’s because of the inbuilt and increased need for computing power in the system and the size of the network.
One great advantage of this distributed competition is it provides an opportunity for equality and decentralization, but like we saw the cost is high energy consumption which some critics call wastage. This is sadly becoming a course of concern for many environmentalists.
Reports from CleanCoin, a project which assesses the climate impacts of proof of work blockchains, show that the green gas emissions of cryptocurrencies is a lot higher than other other forms of money at creation and usage. For instance, Bitcoin, the largest cryptocurrency by market cap, generates over ten times the amount of CO2 generated by traditional banknotes.
With more than 7.7 million tons of CO2, the carbon footprint of Bitcoin is at par with the total carbon emissions generated by Costa Rica. Today, with over 101 million crypto-asset users globally, the carbon footprint generated by the blockchain network doesn’t seem to be improving.
NFTs and proof of work
Although there has been the creation of a type of NFTs called colored coins using the Bitcoin blockchain, the first successful account of NFTs, to gain mainstream adoption, as we know them now, was on the Ethereum blockchain.
Like we saw earlier Ethereum runs of PoW. With the rise in NFTs, there has been huge traffic of NFT related transactions on Ethereum, and subsequently high energy demand from the competition, which is attracting more miners, hence the criticism.
However, it is worth noting that the Ethereum network is slowly undergoing a transformation (called Ethereum 2.0 upgrades) an update that will not require mining. The Ethereum upgrade will see the replacement of PoW with Proof of Stake (PoS).
Understanding proof of Stake
Under a Proof of Stake system, users are randomly given the opportunity to add new blocks based on the amount of coin they have invested in the network, instead of how much computational work they can execute.
Think of it as having stocks of a company’s share. The more stocks you own the higher your are up the chain of command. Investors with the most stock win a company will technically be on the board that defines what is or not endorsed for execution.
Similarly, with PoS the more cryptocurrency a user has, the more likely they will be the winner and awarded the opportunity to add new blocks to the chain.
There are also other twists to the PoS recipe, there is what’s called the delegate PoS. This is where a select amount of trusted stakers are delegated with the responsibility of validating transactions. This is used by networks like Binance, which is the network upon which Orica is built.
NFTs and Proof of stake
With PoW being touted as the primary cause of the rising Carbon footprint in the blockchain industry, more NFT projects are beginning to look for alternative solutions. This is why Orica.io resorted to using the Binance smart chain.
PoS is touted as being 99% more energy efficient than the PoW approach. Plus, using the PoS system is expected to drive down the carbon footprint of the average NFT to around a meager 2.11kg, which is almost the same as the carbon footprint generated when mailing a physical piece of art across the country.
NFTs and commitment to go carbon negative
Despite the many backlashes, NFT projects have received for their massive carbon footprints, there has been some genuine response as NFT developers have started making plans to move to less energy-reliant platforms. For us at Orica the Binance smart chain was the answer.
For instance, Nifty Gateways plans to move to a system that would allow them to mint many NFTs in a single transaction. This is opposed to what was initially the norm, where they would mint many NFTs using separate transactions. With this move, the company plans to go carbon negative within a year or two.
Similarly, many NFT projects are starting to brand themselves as environmentally friendly as they are beginning to switch to other blockchain like Binance and Tezos, which both use a form of the Proof of Stake. As opposed to the PoS approach, which Bitcoin and Ethereum are currently using, Tezos primarily leverages on the less demanding PoS algorithm, which consumes much less energy.
NFTs and the bright days ahead
With the commitment to reduce carbon footprint in the blockchain industry gaining massive attention, the NFT community, especially those who are environmentally conscious, can finally rid themselves of the guilt brought about by the massive carbon footprints generated from mining operations.
Alternatives like Tezos, Binance Smart Chain Networks, Polkadot and eventually Ethereum 2.0, all of which are designed to reduce the excessive carbon footprint in the blockchain industry to the barest minimum, are in fact the future of NFTs. .