Are NFTs bad for the environment? Carbon, energy and more

What are NFTs?

Like Bitcoin and other cryptocurrencies, an NFT is a type of crypto asset whose ownership is registered on a blockchain.

However, unlike those cryptocurrencies, which are fungible, each NFT is a unique digital asset. In other words, one-of-a-kind and non-fungible.

NFTs are created through a process called minting in which the asset is published as a token on a blockchain network, thereby allowing it to be bought and owned. Minting, selling and transferring NFTs, as well as the ownership of NFTs, are all validated and recorded on the blockchain. The unique identifier assigned to the NFT during the minting process provides a record that's meant to be immutable.

Although NFTs are often associated only with digital art, they can take the form of music, videos, in-game items and various collectibles.

In the future, NFTs could be used for event tickets, diplomas and credentials as well as identification verification and real-world property deeds, said Preston Fischer, a managing director at FTI Consulting who focuses on blockchain and cryptocurrency advisory.

"The underlying technology presents a lot of possibilities," he added. "The future of NFTs is not bound to digital cartoons. We'll start to see more refined use cases as we go forward."

The environmental issues surrounding NFTs

The rapid growth of NFTs is fueling concerns about their sustainability.

NFTs consume energy throughout their lifecycle, from the time they're minted, through their subsequent sales and transactions to their perpetual storage online. All of that requires energy to compute.

"Any time a transaction occurs with an NFT it has some sort of energy consumption associated with it," said Ari Lightman, distinguished service professor of digital media and marketing at Carnegie Mellon University's Heinz College of Information Systems and Public Policy. "When it's printed, sold and stored, all of these have some energy expenditure, with some having more than others."

The most energy-intensive blockchains are those that use a consensus mechanism known as proof of work (PoW). This mechanism features a consensus algorithm that requires miners to solve complex problems using a trial-and-error approach, with the first miner to complete the puzzle then being authorized to add a new block to the blockchain. PoW requires fast, high-powered computers which consume high amounts of energy.

Proof of stake (PoS) is also a consensus mechanism, but unlike PoW, it requires miners to stake capital -- that is, cryptocurrency -- into a smart contract, which asks for the work they're doing to validate blocks on the network as collateral. PoS requires less energy because it does not require the massive computational power of PoW.

The open-source, decentralized platform and blockchain Ethereum used PoW until mid-2022, which prompted much of the concerns around NFTs' growing energy use. However, in September 2022 Ethereum shifted to PoS, known as Ethereum Merge.

The Cambridge Centre for Alternative Finance, which researches environmental impacts of different blockchain networks, noted the significance of this switch, calculating that it decreased Ethereum's electricity use by a staggering 99.99%.

Calculating NFT's environmental impact

Any blockchain network that has smart contract capabilities can host NFTs. The Ethereum network hosts the most NFTs, while Bitcoin, Polygon, BNB, Solana and Immutable are other blockchain networks that support NFTs.

The energy associated with NFT varies based on multiple factors, such as whether it’s on a PoW blockchain (such as Bitcoin) or a PoS blockchain (such as Ethereum). Additionally, the different blockchain networks have different energy profiles, with varying consumption needs and energy sources, according to experts.

All of this factors into the NFTs' environmental impact.

However, the use of blockchains using PoS keeps NFTs' environmental impact in check, according to Fischer.

"They're very efficient in the ways that the transactions are processed," he said.

And even the mechanism for NFT transactions on the Bitcoin blockchain are less energy intensive than other cryptocurrency transactions, he said.

"The ordinals of the NFTs that operate on the chain are additive and included in a technical set of operations that are precommitted to run with or without them," Fischer explained.

This process lowers the energy associated with each NFT transaction, he said. This is comparable to a commuter train that runs on a set schedule regardless of the number of passengers onboard, with the energy needed to run the train on that schedule holding nearly steady whether the train is at 10% capacity or 90%. It’s the same with NFTs on a proof-of-work blockchain, with those transactions filling up available space in a way that doesn’t increase the energy that was needed in the first place.

As effective as such blockchain features are, they make calculating NFTs' actual energy requirements and corresponding GHG emissions nearly impossible today.

"It's hard to measure precisely the consumption of something like one NFT," Fischer explained. "You need to estimate, because there are a lot of assumptions going on."

Still, available estimates indicate that a single transaction isn't excessive compared to other digital actions, he said.

For example, Solana "claims that per [transaction] electricity is less than a Google search; Ethereum is arguably even less," Fischer said.

The drive toward NFT sustainability

Both companies and consumers are attentive to the environmental impact of the digital world, including NFTs, according to Scott Likens, chief AI engineer at PwC global and U.S.

NFT creators and customers today have more access to more information about how much energy NFTs consume as well as the energy choices of the blockchain networks that host the NFTs, Likens said.

"The market has responded," he said. "People do care about this, they can choose which networks they want to mint on, and that could be based on sustainability."

However, others said accurate and precise information about the energy and GHG emissions associated with NFTs remains elusive -- making it hard for truly informed decision-making.

"Right now, it's very nebulous. As is the case with AI, users don't know how much energy NFTs use," Lightman said. "Maybe as that becomes known to users, the users might change their behavior."

Fischer said the market is moving in that direction, with blockchains pursuing innovations that can increase efficiency and lower energy use to help save costs as much as save the environment.

"The market is heading in the right direction in terms of lowering impacts all around," he said. "There is an incentive to be more efficient and lower impact, so we're going to continue to see innovations there."

Editor's note: This article was originally published in 2023. It was updated to reflect changes in NFTs and sustainability best practices.

Mary K. Pratt is an award-winning freelance journalist with a focus on covering enterprise IT and cybersecurity management.