It’s a statement bandied by detractors of non-fungible tokens: NFTs are bad for environment, lead to more energy usage and greenhouse emissions, and, ultimately, are killing our planet.
But while that is a popular argument, does it have any merit?
In this article, we’ll answer that question. Some of the topics we cover are:
- Proof-of-Work versus Proof-of-Stake blockchains
- Carbon neutral or negative blockchains
- And a look at the top 10 NFT blockchains in the month of May
Let’s get started.
Are NFTs bad for the environment?
Non-fungible tokens, whether people are buying, selling, or minting them, have an energy cost. This is because NFTs reside on digital ledgers known as blockchains, which require some form of computing power for resolving current block transactions with other transactions on the chain.
This doesn’t make blockchains — and NFTs by proxy — necessarily evil, as environment advocates might suggest. Blockchains happen to be one of the most secure forms of storing data, and many private companies (even governments) use them for a variety of services. But they do require energy usage.
The energy cost per blockchain varies considerably, though it is often less than what outsiders realize. It all depends on what is called a “consensus mechanism.” Essentially, when a blockchain resolves its transactions, it relies on a tool to achieve agreement on the data in the system. There are many different types of consensus mechanisms:
And so on. Each consensus mechanism, when applied, uses a certain amount of energy. With most of the consensus mechanisms, that energy output is low — the equivalent of running electronic appliances for a month, as an example. But others require large amounts of energy, which is where this debate gets bogged down.
As we’ll show later in this article:
The vast majority of blockchains popular for NFT trading use low-energy output consensus mechanisms.
Even Ethereum, which once used a consensus mechanism with a large amount of energy output, changed its mechanism in an event called The Merge. Now, the No. 1 home for NFT trading uses 99.9% less energy than before, a win for both environmentalists and the crypto community.
Now, let’s dive a little deeper into energy consumption of specific consensus mechanisms with a tidy comparison: Proof-of-Work versus Everything Else.
Proof-of-Work versus Everything Else
The debate whether NFTs are bad for the environment hinges on the blockchains that NFT trading and minting take place on and the consensus mechanisms those blockchains use. In the cryptocurrency world, there is a chasm between blockchains that use a great deal of energy and ones that use very little. That chasm is separated into two categories of consensus mechanisms: Proof-of-Work and Everything Else.
You may have heard the arguments: the Bitcoin blockchain uses more energy than a small country. What people really are saying is that Proof-of-Work blockchains use more energy than small countries. The truth is, as we’ll see, other blockchains use very little.
Proof-of-Work functions like this: In every block, countless miners around the world scramble to resolve the current transactions with previous ones. The goal is to solve a complex computational puzzle. The reward is significant: thousands of dollars.
In the past, you could solve these puzzles with a simple home computer. But over time, the answers to these computational problems became more and more difficult, requiring more and more advanced technical equipment and computational power. And as the need for more advanced equipment rose, so did the energy requirements.
Today, experts estimate that the Bitcoin network uses 127 terawatt-hours of energy per year, more than many countries. While the energy cost leads to a more robust security system (good for the transmission of digital currency), environmentalists point to it as the main downfall of crypto. After all, what good is a decentralized virtual currency when the Earth is burning?
Fortunately, for NFT enthusiasts and anyone looking to get into NFTs, most non-fungible token trading does not happen on the Bitcoin blockchain.
Or any other blockchain with a Proof-of-Work consensus mechanism. It simply doesn’t.
Most trading happens on blockchains with other consensus mechanisms, like the ones listed in the previous sections. And those happen to use much less energy. Take, for instance, Ethereum’s new Proof-of-Stake consensus mechanism.
Within a blockchain that has a Proof-of-Stake consensus mechanism, certain individuals or entities called ‘validators’ lock up cryptocurrency in a smart contract to have the opportunity to validate incoming data. The more a validator locks up, the better chance they have of being selected to validate the new data. And if they are selected, they can receive substantial cryptocurrency rewards.
Proof-of-Stake consensus mechanisms use less energy because no expensive computer equipment is required. Instead, it all comes down the individual and their ability to validate the data. In essence, the amount of electricity used is lower, hence the diminished environmental impact.
Most NFT blockchains use some type of consensus mechanism that doesn’t require much energy, if any energy at all. The next explores the second-generation blockchain, those that are carbon neutral.
The Rise of the Carbon Neutral Blockchain
Even with the movement towards blockchains with Proof-of-Stake (and other low-energy usage) consensus mechanisms, you might be surprised to learn that some blockchains have no environmental impact at all — and many of them are in the top blockchains for NFTs.
Here is a quick list of some of the top blockchains for NFTs that refer to themselves as carbon neutral or negative:
- Immutable X
So, how have these blockchains achieved carbon neutral or negative status?
For one, they use very little energy to begin with. Solana, which uses a Proof-of-History consensus mechanism, requires around 2,000 Joules of energy per transaction, which is less energy than two Google searches or one full charging of your phone. Polygon, which uses Proof-of-Stake, has an even smaller energy footprint.
In addition to having consensus mechanisms that use little energy, these blockchains have achieved their carbon neutral or carbon negative statuses by purchasing carbon credits (or carbon offsets), which means doing something good for the environment to counteract negative effects. One example is planting trees.
If you think that these blockchains don’t mean much for NFTs, think again. Solana, Polygon, and Immutable X are routinely listed in the top 10 blockchains for non-fungible tokens based on sales volume, according to Web3 statistic website CryptoSlam. Another blockchain often in the top 10 is Flow, which has an energy cost even less than Polygon.
The truth is, Web3 wouldn’t be making inroads into mainstream industries if it weren’t for these blockchains. Bigger companies are acutely aware of crypto’s reputation for being bad for the environment and deliberately choose blockchains that have little-to-no environmental impact.
Polygon has become the home for Web2 companies looking to make the jump into Web3. It counts among its partners Starbucks, Stripe, Disney, Meta, Mastercard, Prada, and the NFL. When FIFA, the world’s governing body for soccer, wanted to get into Web3, it chose Algorand as its official blockchain partner. Algorand is a carbon neutral blockchain with a Proof-of-Stake consensus mechanism. Other major sports leagues like the NBA and UFC have chosen Flow.
Therefore, most NFT blockchains aren’t bad for the environment at all. But any discussion about the impact of non-fungible tokens wouldn’t be complete without a section about Ordinals, which reside on the Bitcoin blockchain.
A Word on Bitcoin Ordinals
In early 2023, a Bitcoin developer named Casey Rodarmor created a new protocol for the ecosystem: Using a clever technique involving SATs (the lowest unit on the Bitcoin blockchain), he was able to create a non-fungible token on the Bitcoin blockchain. Unlike NFTs on other blockchains, which generally require off-chain data, these NFTs, called Ordinals, would have their data stored completely on-chain. The NFT space went wild.
Since the launch of that protocol, NFT activity on the Bitcoin blockchain has surged, amounting to millions minted. And Bitcoin has become one of the most popular blockchains for NFTs, ranking second in our analysis for a 30-day period ending on May 25th, 2023. After Ethereum, it’s all Bitcoin, all the time.
Unfortunately, this poses a problem. While many blockchains have moved towards less energy intensive consensus mechanisms, Bitcoin still relies on Proof-of-Work. As we’ve seen, it uses more energy than some entire countries. NFTs bring with them more transactions, which means more energy expenditure.
Not a good look.
Fortunately, there is a small, silver lining. According to research by ESG analyst Daniel Batten, 50% of Bitcoin mining uses energy from renewable energy sources. Think solar power, wind power, hydro power, or geothermal energy. It may not be out of good will: These clean energy sources are generally cheaper than fossil fuel equivalents. But using them, they are.
As mining becomes more difficult in the decades to follow and the energy usage of the blockchain increases, these renewable sources of energy may be critical to stemming the fallout from Bitcoin mining — and the public image of that blockchain in mainstream spaces.
A Look at Eight of the Top 10 NFT Blockchains
For this article, we did a little research and examined the top 10 blockchains for NFTs by sales volume for a 30-day period ending on May 25th, 2023. Check out the following table:
|# of Transactions
|No information available
|n/a (Optimistic Rollups)
As you can see, almost all the blockchains employ Proof-of-Stake, other consensus mechanisms with low energy usage, or specific technology that doesn’t use much energy. Bitcoin is really the outlier here.
Final Thoughts on NFT Blockchains and Energy Cost
As this article has shown, NFTs can be good or bad for the environment — it simply depends on which blockchain they reside and the consensus mechanism of that blockchain. Most blockchains don’t use a lot of energy, and many are carbon neutral. However, the Bitcoin blockchain chews up a ton, providing environmental activists with ample ammunition that ‘NFTs are just plain bad.’
Who knows: In the future, there may be a social shift away from Bitcoin NFTs to NFTs on more sustainable blockchains. But for now, it’s clear that the notion that all NFTs are bad for the environment is simply a myth, and one that needs dispelling.