The COVID-19 pandemic has seen an increasing number of people turn to technology for work and recreational pursuits. It has led to the crypto, blockchain, and NFT technologies experiencing an uplift. A few years ago, blockchain technology was not the norm, and the number of transactions did not match the number seen today. As blockchain technology becomes increasingly popular, environmental effects are becoming a consideration.
The blockchain is a digital ledger of transactions duplicated and stored over a network of computers (called nodes) in the blockchain system. It allows recording information and data that is impossible to change prevents hacks and manipulation. Every time a new transaction occurs, the data registers to every participant's ledger.
The ability to store digital assets on the blockchain is the appeal of NFTs. NFTs are unique; there's only one version in existence with the possibility of proving ownership. It's feasible to record art, music, video games, and many other things.
Creating the artwork or the pieces of music or video game does not, depending on the asset, consume a great deal of energy. However, carrying out transactions on the blockchain uses enormous amounts of energy.
Bitcoin set the motion for blockchain technology to emerge; it's the oldest blockchain in use. Bitcoin is a database of accounts with digital currency stored in each one. But NFT transactions are not feasible through Bitcoin.
Ethereum is an evolution of Bitcoin and is more sophisticated with more outstanding capabilities. One of these features of Ethereum is "Smart Contracts," which enables an agreement or contract to take place between the buyer and the seller to allow a change of ownership of NFTs.
The likes of Bitcoin and Ethereum use 'proof-of-work' (POW) to complete transactions. With POW, the computers (nodes) in the system attempt to complete a complex mathematical problem. Proof of Work prevents DDoS attacks, spam, and other fraudulent activities. Hackers and actors with ill-intention do not have the computing power to hijack the blockchain. Many nodes carry out POW per transaction, but only one node is the "winner." All the other nodes have wasted their energy. Additionally, the nodes must communicate to validate the transaction, further adding the power usage.
Minting an NFT on the Ethereum blockchain can use the same energy as a US household in 9 days. To purchase an NFT, it is not unusual for the transaction fee to amount to some hundreds of dollars. Energy usage is not limited to the initial minting. Further transactions such as listing the NFT and selling on the secondary market also consume energy.
While there are legitimate concerns about energy usage, there are answers to these questions. Ethereum blockchain accounted for over 99% of the NFT transactions by the end of 2021. It is currently moving away from the 'proof of work' concept to a more efficient 'proof-of-stake system.' ETH 2 will roll out in 2022.
'Proof-of-stake system' allows cryptocurrency owners to stake coins in exchange for checking transactions and adding valid transactions to the blockchain. Owners create their validator computer system (nodes) and stake coins to participate. Completion validates the trades to ensure accuracy. Unlike 'proof of work,' endless nodes are not carrying out 'wasted' work, and as a result, energy efficiency increases. It's thought the 'proof-of-stake' system could cut down energy use by as much as 99%.
Other blockchains do not employ a 'proof-of-work' methodology; these include Cardano, Flow, GoChain, Solana, and Tezos. They utilize the 'proof-of-stake' system and are more efficient. But these blockchains do not enjoy the same popularity as Ethereum.
Layer two networks can improve efficiency and cut down energy wastage. Polygon is a layer two network that works with Ethereum. On Polygon, the transactions are fast and use less energy with lower transaction fees. Such techniques could be adopted until more environmentally friendly solutions become common.
A further solution is for blockchains to use renewable energy sources such as solar, wind, and hydroelectric. These energy sources will not run out, are more environmentally friendly, and do not negatively impact public health.
In recent times the environmental effects of NFTs have been highlighted, leading to people questioning the validity of NFTs. But some technologies alleviate the situation, and a more environmentally friendly solution will become the norm with time.