The implications of crypto trading for NFT artworks.
Crypto artworks released as non-fungible tokens (NFTs) have been gaining popularity in recent months. Many creators and companies have jumped on the bandwagon and released digital artworks of their own.
ArtStation, a popular online platform for sharing and discovering artwork portfolios, announced plans in March this year to release a series of NFT artwork from several established artists. There was immediate backlash following the announcement, with many pointing to the environmental impact of crypto transactions, particularly on Ethereum, which is one of the most popular blockchains for NFTs. ArtStation has since paused any plans, saying that they hope “to find a solution that is equitable and ecologically sound” in the future.
The debate over the environmental impact of cryptocurrency and blockchain technology is not novel. Yet, it has now reached an even larger audience with the explosion in interest and intrigue around NFTs.
NFTs are pieces of digital content linking to the blockchain, the digital database underpinning cryptocurrencies such as Bitcoin and Ethereum. To buy NFTs, you would usually have to purchase Ethereum (ETH) tokens. It is because most NFTs are Ethereum-based tokens, and most marketplaces for these digital collectibles, like OpenSea, accept only ETH tokens as payment.
How block mining works
Every time a transaction occurs, information will be recorded in the blockchain as proof that money has changed hands.
To make that happen, high-powered computers on dedicated computer “farms” around the world would work overtime to solve a series of complex mathematical puzzles. Computers run guessing games involving an astronomically large number of guesses every second. At the time of writing this article, for example, the network is currently estimated as being able to handle 181,000,000,000,000,000,000 computations every single second. When one of those computers guesses the right answer, a block is added to the blockchain, verifying the transaction.
Environment impact of block mining
A proof-of-work blockchain, like Ethereum or Bitcoin, requires energy-intensive calculations to mine blocks and record transactions.
The calculation process is extremely energy-intensive and relies on electricity generated by fossil fuels, particularly coal. An estimate from the University of Cambridge Bitcoin Electricity Consumption Index shows that the global Bitcoin network currently consumes about 180 terawatt hours of electricity annually, roughly equivalent to the annual output of 23 coal-fired power plants. According to Digiconomist, Bitcoin is capable of producing 85.75 megatons of carbon dioxide annually. Such a carbon footprint is comparable to countries such as Bangladesh and Chile.
The good news
Ethereum has said for years that they are transitioning from a proof-of-work blockchain to a proof-of-stake model. Under this model, instead of having to pay for huge amounts of electricity to enter the game, users instead have to lock up some of their own cryptocurrency tokens in the network to “prove” they’ve got a “stake” in keeping the ledger accurate. Coin owners with staked coins become “validators”.
“That would essentially mean that Ethereum’s electricity consumption will, literally, over a day or overnight, drop to almost zero,” says Cambridge Centre for Alternative Finance researcher Michel Rauchs.
Another alternative to solving the emission problem of NFTs is to use clean energy. If more cryptocurrency computers ran on clean and renewable energy, emissions would naturally go down. Many experts have recommended using renewable energy sources, such as hydropower, nuclear power and wind power, instead of burning coal to power Bitcoin mining.
Header image courtesy of Unsplash
