July 27, 2023 - 9 min read
In recent years, NFTs have faced significant scrutiny for their potentially negative environmental impacts– and NFT transactions have resulted in significant carbon emissions. However, today’s NFTs, most of which are minted on the Ethereum network, which is now proof-of-stake, have little negative impact on the environment. However, when Ethereum was mined, NFTs did have a small but noticeable environmental impact.
While Ethereum-based NFTs are relatively environmentally neutral, some NFT-like assets, like Bitcoin Ordinal Inscriptions, still have a negative environmental impact. This is because the Bitcoin blockchain still utilizes energy-intensive proof-of-work (PoW) mining and has a significant carbon footprint. NFTs on most other chains, like Ethereum Layer-2s and proof-of-stake chains like Solana, also have a limited environmental impact.
In this article, we’ll look at everything you need to know about the environmental impact of NFTs, from their historical environmental impact to recent changes in the Ethereum network, as well as changes in NFT minting technology, including batch-minting NFTs.
Ethereum-based NFTs started to gain serious popularity in 2017, during which the blockbuster NFT collection CryptoPunks was launched. When Ethereum was created in 2015, it was a 100% proof-of-work (PoW) blockchain, which required individuals to mine the blockchain’s native currency, ETH, by solving increasingly complex computer problems.
Just like Bitcoin mining before it, ETH mining began on laptops and PCs, but as the chain gained traction, mining became harder, leading to the use of ASICs (application-specific integrated circuits) and institutional mining operations. However, even during the early days of Ethereum, there was talk about eventually switching to a proof-of-stake network, which some felt might not work unless the chain already had a significant number of diverse node operators.
Ethereum mining took a lot of energy, and Ethereum’s overall energy use peaked at 93 terrawatts per year in May 2022, more than the estimated energy use of Finland, a country of 5.5 million people. However, this pales compared to Bitcoin’s energy use, estimated to be at least 127 terawatt-hours (TWh) a year. However, to put all of this in context, the energy use of the entire cryptocurrency industry is still far, far, less than the traditional finance system, which means that some criticism about the environmental impact of NFTs and cryptocurrency may be misplaced.
But, aside from overall Ethereum energy use, how much power is required for individual NFT transactions? Some estimate that, during Ethereum’s time as a proof-of-work network, a single NFT transaction would use 50 kWh, about the same energy used by an average household during a 24-hour period. The minting process was even more expensive, estimated to use 142 kWH, enough power to operate a refrigerator for around 30 days.
For instance, given that the estimated power to run a single NFT transaction is close to 50 kWh, it is the same energy it takes to run a typical household for one day. However, with Ethereum’s September 2022 merge and the blockchain’s resulting switch to a proof-of-stake network, all of that has changed.
On September 15, 2022, the Ethereum blockchain completed the Merge, the most important event for the blockchain since its initial creation in 2015. The Merge was a complex and pervasive update that updated the Ethereum blockchain from a proof-of-work network, which required an expensive mining process with a high carbon footprint, to a proof-of-stake model without mining.
The Ethereum Energy Consumption Index shows Ethereum’s massive drop in network energy usage post-merge. (Source: Digiconomist)
In proof-of-stake networks, validators stake a certain amount of a blockchain’s native asset, in this case, ETH, to receive staking rewards generated from a portion of overall Ethereum network gas/transaction fees. According to a September 2022 report from the CCRI (Crypto Carbon Ratings Institute), an organization commissioned by blockchain software and research firm ConsenSys, the Merge instantaneously reduced Ethereum’s carbon footprint by 99.9%. With energy-intensive ASIC mining no longer on the table, the only energy used by the blockchain is the minimal power used to operate computers running Ethereum nodes.
This means that, basically overnight, the Merge also reduced NFT transactions by a similar amount, making each NFT transaction nearly carbon neutral.
While it may be true that the environmental impact of NFTs on Ethereum has been drastically reduced since the Merge, it can be reduced even further via the batch minting of NFTs. Unlike the more common ERC-721 NFT standard, the ERC-1155 dynamic NFT standard allows for batch minting and batch transferring of NFTs.
This means that, instead of paying gas fees for each transaction, one can mint hundreds or even thousands of NFTs in a single transaction. The gaming company Enjin first developed the ERC-1155 standard in September 2018, four years before the Merge. Therefore, we can say that batch minting lead likely led to a small reduction in overall Ethereum NFT energy use. However, this reduction was not noticeable enough to drastically reduce the overall carbon footprint of Ethereum NFTs.
While Ethereum is still, by and large, the most popular blockchain for NFTs, it’s far from the only one. NFTs on Layer-1 blockchains like Solana and Ethereum Layer-2s like Polygon have seen their popularity explode in recent months and years. This has been reflected by a relative uptick in floor prices, sales volume, and the integration of NFTs from these chains on major NFT marketplaces like OpenSea.
Solana Monkey #1355, which sold for more than $2 million in October 2021. (Source: Hypebeast)
For example, in October 2021, at the height of the last crypto boom, a Solana NFT sold for more than $2 million, and a Polygon NFT sold for more than $420,000. While prices of NFTs from all chains have fallen significantly since then, NFTs from these non-Ethereum chains are still growing in popularity.
But how do NFTs from these other chains impact the environment? Well, considering that Solana is a fully proof-of-stake blockchain, it uses little overall energy and has a relatively small carbon footprint. For instance, a March 2022 report by Solana estimated that the average Solana transaction uses 2,707 Joules, less energy than three Google searches.
When it comes to Ethereum Layer-2s, energy use is also quite low. Layer-2s generally batch hundreds or thousands of transactions and send them to the Ethereum mainnet as a single transaction (typically using cryptographic proofs like ZK-Rollups or Optimistic Rollups). Therefore, the Layer-2 network only needs to pay Ethereum gas fees for one transaction instead of hundreds or thousands of individual transactions, saving significant amounts of energy. This is sometimes referred to as the L1 data fee.
In addition, since Ethereum Layer-2s generally have their own proof-of-stake governance token, individual users will also have to pay an additional fee to support the L2, sometimes referred to as an L2 data fee. This adds slightly to the environmental impact of Layer-2 transactions, but, in general, L2 environmental impacts per transaction are significantly lower than transactions on the Ethereum mainnet.
In January 2023, developer Casey Rodarmor released Ordinals, which are, in essence, NFTs on the Bitcoin blockchain. Many debate whether these are truly NFTs or NFT-like assets, but either way, they are being sold, marketed, and traded just like NFTs on Ethereum and other blockchains. However, since Ordinals are minted on the Bitcoin blockchain, a proof-of-work chain, they have a significantly higher environmental impact than Ethereum NFTs or NFTs minted on other proof-of-stake chains.
Data from Dune Analytics shows that more than 18 million ordinals had been minted by mid-2023. (Source: Dune Analytics)
Ordinals, while still somewhat niche compared to other NFTs have still exploded in popularity in recent months. Spring 2023 data reported that over 8 million ordinals had been minted, while data from Dune Analytics indicated that, as of mid-2023, more than 18.3 million Ordinals had been minted. So, how much energy have Ordinals consumed? A 2023 report from Statista estimated that each Bitcoin transaction’s energy consumption is around 700 kWh, meaning Bitcoin Ordinal minting may have consumed 13 billion kWh since the beginning of 2023.
The Bitcoin Energy Consumption Index shows a maximum annual energy consumption of 200+ TWh per year, though that consumption had fallen by about 50% by mid-2023. (Source: Digiconomist)
2021 data suggests that Bitcoin generates 560g of carbon dioxide per kWh, meaning that Ordinals have led to around 7.3 billion kilograms of carbon dioxide in less than one year. For context, the average American’s annual carbon footprint is 16 tons (about 14,500 kilograms)– meaning that Ordinals have likely already generated the annual greenhouse gas emissions of over 50,000 Americans. It’s also important to realize that Bitcoin transactions may take as much as 1,200-1,400 kWh, so the environmental impact of Ordinals could be significantly higher.
On the other hand, we should note that a high percentage of Bitcoin mining operations are powered by renewable energy, so Ordinals’ carbon emissions may be somewhat lower than most people estimate. For example, many Bitcoin mining companies are currently powering mining operations with geothermal, wind, and solar, which has reduced the emissions generated by the blockchain.
So, are NFTs bad for the environment? Well, the answer is complex, but generally, the answer is no. With millions of Ethereum NFTs minted since NFTs became popular in 2017, it’s clear that NFTs have had a negative, yet very limited, impact on the environment. However, as we’ve discussed, Ethereum’s transition to a proof-of-stake network reduced its energy usage by an estimated 99.9%, effectively eliminating the environmental impact of NFTs. The switch to proof-of-stake also effectively eliminated the environmental impact of NFTs on Ethereum Layer-2s, like Polygon, while blockchains that started as proof-of-stake networks have never had a significant environmental impact.
However, as we’ve mentioned, Bitcoin Ordinal Inscriptions, which are incredibly similar to NFTs, have a noticeable environmental impact, as Bitcoin is still an energy-intensive proof-of-stake network. Ordinals are growing in popularity, but unless they replace Ethereum and Ethereum-adjacent NFTs, they are unlikely to have a major environmental impact. So, while many complain that NFTs are an environmental stain on the blockchain technology industry– in truth, they have almost no environmental impact.
In a broader context, complaints about the environmental impact of NFTs may simply be an easy way to critique NFTs and, more broadly, the cryptocurrency industry, even if these complaints have little to no validity. When putting things in context, it’s important to realize that while crypto industry activities like Bitcoin mining do have some environmental impact, that impact pales in comparison to the impact of the legacy finance industry, meaning that, in the broader scheme of things, crypto and blockchain might end up helping the environment– not hurting it.
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