Non-Fungible Tokens (NFTs) are an invention unique in human history whose role is fast extending beyond the speculative trends around collectibles to use cases that have a positive social impact.
Through NFTs, a broad range of physical and virtual assets can be authenticated, providing transparency on ownership and underlying attributes of tokenized assets while preserving the privacy of individual owners. The cryptographic guarantees of NFTs make them well suited for use cases such as anti-counterfeiting, provenance tracking, and title transfer.
However, due to the high level of computational power required to mint an NFT on Proof of Work (PoW) blockchains, and the energy required to achieve the necessary computational power — which is primarily supplied by non-renewable fuel sources — the emissions from minting, transferring, and burning NFTs can be quite high.
It’s estimated that the mining activities associated with cryptocurrencies emit as much as 114.06 megatons of CO2 per year, equivalent to the same amount produced by the entire Czech Republic.
Most of this effect is caused by electricity usage, as blockchain networks are frequently energy-intensive due to their PoW consensus mechanisms. Based on current patterns, blockchain technology will account for 1% of global electricity consumption by 2025. However, not all digital assets qualify as energy-intensive.
In a new study, Linux Foundation Research and Hyperledger Foundation collaborated with Palm NFT Studio to conduct a study on the design architecture of NFTs and how they may have varying carbon footprints depending on their underlying technology stacks. In essence, not all blockchains are equally hazardous to the environment.
The report also provides recommendations for how NFT creators can reduce the environmental impact of their work, such as by using an alternative consensus mechanism that is not carbon-intensive. Those mechanisms need to be robust enough to:
- Reduce blockchain’s carbon footprint
- Protect against coordinated blockchain attacks by increasingly consolidated mining computing power
- Overcome blockchain scaling challenges, which are limited by both slow finality times and low volumes of transactions per second (on Ethereum and many other blockchains)
One such alternative in use today is the Proof of Stake (PoS) consensus mechanism, which is less computationally intensive than PoW, among others. Rather than calculating to solve computational issues, in a PoS system, those in control of the blockchain’s upkeep stake (i.e., “pledge”) their currency, putting it in a type of escrow as a guarantee against fraud. If everything goes well, those who stake their tokens may earn a little profit through a share in block rewards.
While we believe that a move to more environmentally-friendly NFTs by using alternative consensus mechanisms is an essential first step, it is not the only one needed to make the industry more sustainable. Sustainable practices for NFTs (and for the blockchain industry as a whole) start with reduction. Using renewable energy sources, such as solar and wind, can further reduce blockchain emissions.
Beyond choosing sustainable blockchain architecture for issuing NFTs, carbon offsets are an important add-on to the sustainability equation. Offset projects can include a wide range of activities, from planting new forests to capturing methane gas from landfills.
Measured, verified, and certified offsets allow a price to be placed on more carbon-intensive activities providing companies and businesses with a way to incorporate these into their budgets. While embracing offset projects can lead to greenwashing claims, it’s important to choose certified initiatives in tandem with other efforts.
NFTs are here to stay, so now is the time for the industry to reduce its carbon footprint and become more sustainable by leveraging existing technologies and carbon offset opportunities. We hope this report serves as a starting point to inform such decisions.