NFT’s: Crypto’s New Craze

In just several years, cryptocurrencies have become a major staple in the world of investments and digital economies. Bitcoin was the first to risse, and it soon spawned a plethora of digital currencies that people all over the world have begun investing in. Ethereum, Dogecoin, Shiba Inu Coin, and many more have made their way into mainstream media in just two years.

With the new generation’s soon-to-be business tycoons focusing more on digital forms of making money, a new crypto trend has risen: non-fungible tokens (NFTs). NFTs have taken not just the business world by storm, but our daily lives as well. NFTs, non-fungible tokens, are digital files that people can buy and sell the rights to. These files can be digital artwork, a video, or even the original file of a tweet (which have been sold before).

The original Nyan Cat video from over ten years ago had recently been sold for $600,000. While it does seem like a too good to be true-scheme to get rich, the effects of NFTs on the environment may be too hard to turn a blind eye to…

What are NFT’s?

            Before diving into how NFTs affect the environment, it is important to understand what they are. NFTs are digital files and assets stored on a blockchain that people will buy the rights to (sort of like copyright). A blockchain is a record of transactions made through a cryptocurrency on a network. One of the most, if not the most, popular NFT blockchain is Ethereum. So, if you purchase an NFT through a marketplace that is powered by Ethereum, then your transaction will be seen on the Ethereum blockchain by other marketplaces and databases.

Think of it as choosing what internet provider to choose: AT&T, T-Mobile, etc. You will still be able to interact with users of a different service regardless of what service to choose, but your information and records are stored with the one that you decide to go with.

NFTs can be any digital file that a person uploads onto a blockchain. One of the biggest transactions of recent time was digital artist Mike Winkelmann’s digital artwork project “The First 5000 Days”. Winkelmann, professionally known as Beeple, compiled 5000 digital art pieces into one. The digital file of “The First 5000 Days” was sold for $69.3 million.

The first recorded NFT dates back to 2015. But, they did not become as streamlined until this past year. So, how did they get to this point so quickly?

How the NFT Craze Started

NFTs are another form of cryptocurrency, which has been on the rise since about 2011 with the popularity of Bitcoin. Individuals in business and investments saw Bitcoin as a means of long-term currency that is more secure and safe than investing one’s money into banks. Small business owner and cryptocurrency investor Andre Smith first got introduced to crypto in 2012.

Through text message, Smith stated, “My money mentor, a gentleman that is currently a senior Vice President and hedge fund manager for Merrill Lynch, brought crypto to my attention and suggested that I invest… I knew nothing about crypto. My mentor explained it to me, the high risks involved, and the large payoff it could potentially bring.”

The payoff was indeed large, as Smith then wrote, “In 2018, I sold 5 of my tokens for over $100k.”

At the time Smith invested in 2012, the value of one Bitcoin ranged from $5 to $13. In 2022, one Bitcoin is worth about $37,059.98. This growing interest and value in cryptocurrencies stems from the public’s search for some sort of new profitable investments. In recent years, COVID-19 was a key player.

During the early stages of the pandemic in 2020, job shortages, hour cuts, and quarantines forced the public indoors and reduced their means of making money. So, some people turned to different options: stock investments. Over the course of the year, the number of individual investors skyrocketed. According to statistical analysis software JMP, the stock brokerage industry estimated ten million new accounts that year. But how does this concern crypto?

Well, cryptocurrencies began to take heed in the investment world at around the same time because of the effects the pandemic had on the United States’ economy. With people quarantined inside their homes and not being able to work, there was rarely any retail shopping or economic activity being done by the public. So, money was not getting pumped into the economy (or banks for that matter) as much as it needed. If the economic situation were to worsen, then the country could go through another economic crash such as the Great Depression or the 2008 crash, and banks would be unable to protect our accounts. By buying into cryptocurrency, those interested would not have to worry about their own money being lost in an economic crash because it is invested in a privatized currency, void of bank handling.

This lack of regulation in cryptocurrency is what Smith states makes crypto different. “Crypto is a new way for people to invest their money without so much regulation) which can be harmful when utilized by people with bad intentions), and, most importantly, it prevents banks from using the individual’s monies to invest/support things against their morals and/or integrity,” he wrote. “Crypto currently eliminated the banks completely.”

Inherently, crypto cuts out the middle man between us and our money.

Since the rise of Bitcoin, many other cryptocurrencies have begun to take shape, and have popularized cryptocurrency investment. Ethereum (the cryptocurrency used to purchase and sell NFT’s), Shiba Inu Coin, and Tether are examples of uprising cryptocurrencies that have grown more popular since 2021.

Now, NFT’s have become a household name with cryptocurrencies, but the question rises of whether that is a good thing?

Environmental Effects

The key issue that cryptocurrencies are confronted with is their energy consumption. Since a high-powered computer is required to mine units of cryptocurrency, miners often use multiple to try to mine as many as possible. The more powerful the computer, the faster the mining. But, also, the faster the mining, the more energy it consumes.

In 2020, French artist Joanie Lemercier, who was known for his activism against climate change, sold six NFTs on the auction website Nifty Gateway. While the transaction took ten seconds to occur, the sale itself consumed 8.7 mWh (megawatt-hours) of energy. That is if 8.7 megawatts of energy are used continuously for one hour. To put it into perspective, one megawatt-hour of energy is enough electricity to power the average American home for 1.2 months. So, just imagine how much energy 8.7 times that is.

That energy consumption was six NFT transactions in a matter of seconds. On average, there are 1.1 million Ethereum transactions per day. Yes, NFTs do range in energy use, but the energy it takes to mine one Ethereum is beginning to increase in activity due to the high volume of transactions that are occurring each day.

Now, Lemercier advises against purchasing NFTs, and has since been an advocate of the website carbon.fyi, which calculates the carbon emission of an Ethereum address (the token used to identify an NFT).

The way Ethereum is used on NFT blockchains is slightly similar to how Bitcoins are verified on a blockchain. When an NFT is sold, the record of the transaction is stored on the blockchain via mining. However, it is not just a destination A to destination B process. The energy used to auction off the NFT, the amount of people that bid on it, the actual selling of the NFT, and its transferring on the blockchain add up quickly.

The editors of the website Ethereum.org have also listed the daily energy consumption of the Ethereum blockchain, stating it amounts to 14,400 kWh (kilowatt-hours) per day, which is 14.4 mWh. However, they openly compare the energy consumption of Ethereum to Visa card transactions, stating the 14,400 kWh that Ethereum consumes is only about 0.4% of the energy used by Visa for the same number of transactions. However, this is only compared to an average number for Visa transactions (25,000 transactions per second). While it consumes less energy than Visa per second, it still consumes more on a daily basis because of the longer process it takes to mine Ethereum. One Visa card transaction involves a consumer and a seller: the consumer uses their card to purchase a good from the seller. The same amount of energy is used for each transaction with a Visa card. However, every Ethereum transaction involves the mining of the NFT, its selling, its auctioning, the final sale, and the transfer of the token to the consumer. Average that for each transaction per second, especially with the higher computer power it takes to mine Ethereum compared to a Visa transaction (0.0014863 kWh), Ethereum consumes more energy.

Since the energy consumption for Ethereum is so extreme (and far more than Bitcoin), NFTs can cause long-term harm to the environment. The mining and transactions of NFTs lead to high energy use, and thus a high emission of fossil fuels. So, is there a positive outcome of the NFTs’ energy consumption?

Carbon Emissions

While CO₂ emissions do not translate directly to mWh or kWh exactly, estimates can be determined. According to the Environmental Protection Agency’s website, the United States’ national average carbon dioxide output rate for electricity generated in 2018 was 947.2 pounds of CO₂ per mWh. So, if we plug the average daily energy consumption of Ethereum (14.4 mWh) into this, it would equal an estimate of 13,639.68 lbs. of CO₂. With this number constantly increasing as NFTs grow more popular in the crypto market, this could worsen for carbon emissions around the world.

Andre Smith is also aware of cryptocurrency’s carbon footprint, stating via text message how he is aware of cryptocurrencies’ carbon emissions in the atmosphere, and acts to minimize his carbon footprint as a business owner and investor.

When asked how he minimizes his carbon footprint, Smith wrote, “As for my carbon footprint, me and my business partners make strides in our place of businesses as we follow a holistic and integrated approach to enhancing our work culture, improving our place of work, and reducing environmental impacts.”

So What Now?

While NFTs did grow rather quickly, they are not leaving anytime soon. According to the Etherscan.io, a platform that tracks Ethereum transactions, the average block size of one day of Ethereum transactions on February 14, 2021, was 44,806. On February 19, 2022, the average block size 101,752. Transactions are ever-increasing, and have been in the steady 1.1-1.2 millions in the past month, but they show no sign of slowing down.

Even though NFTs are here to stay, the energy consumption of cryptocurrency purchasing does not have to be as harsh. Investing in more environmentally-friendly cryptocurrencies can help reduce one’s carbon footprint in the digital marketplace. The best way to do so is by educating one’s self in cryptocurrencies that do not consume as much energy or are environmentally safe. All in all, research is the best resource one has in the digital age we are living in.