Entering NFTs: Understanding the environmental impact of digital collectibles

NFTs have taken pop culture by storm over the past year. On a nearly daily basis, a new celebrity announces their interest in the emerging technology — usually by dropping an NFT collection. From Quentin Tarantino’s Pulp Fiction NFTs to Snoop Dogg’s NFT music label, a wide range of notable names are beginning to realize the creative value that NFTs offer. While celebrity involvement has played a key role in raising mainstream awareness about the array of NFT use cases and investment potential, it has also drawn the ire of some fans.

In the midst of the hype surrounding the NFT phenomenon, apprehensions have grown about the technology’s environmental impact. In one notable example, the popular South Korean boy band BTS faced significant pushback a few months ago in response to their plans to debut their own NFT collection. The backlash BTS experienced is one of many similar instances, resulting in some artists becoming wary of exploring the NFT trend for themselves.

What many fans miss is that it is possible to create NFTs in a manner that is not at the expense of the environment. In fact, many NFT platforms have adopted more environmentally responsible methods of minting by incorporating energy-efficient blockchains such as Tezos, Flow, Polygon and Solana. These blockchains operate using a consensus mechanism called proof-of-stake (PoS) to validate transactions on the blockchain, such as minting an NFT. This type of consensus mechanism requires considerably less energy than proof-of-work (PoW), the previously dominant way to validate transactions, as we’ll explain shortly.

But given the amount of technical jargon and misinformation regarding NFTs, the barrier to entry can feel overwhelming when it comes to conducting one’s due diligence. Before any artist enters the NFT arena, there are four key factors to be considered to maximize eco-friendliness: PoW, PoS, sidechains and carbon neutrality.

Related: How blockchain technology is transforming climate action

Proof-of-work

Environmental concerns surrounding NFTs primarily stem from a consensus mechanism called proof-of-work. In essence, PoW functions as a security detail for cryptocurrency transactions. To ensure that transactions are secure and legitimate, computers must solve arbitrary mathematical puzzles as verification. The computers involved in this process require large amounts of electricity, hence the community backlash some celebrities have received after launching NFTs on PoW chains.

Related: Green Bitcoin: The impact and importance of energy use for PoW

Proof-of-stake

Fortunately, not all blockchains require PoW, and — contrary to popular misconception — NFTs can be minted in a manner that is environmentally conscious. This is where proof-of-stake presents a compelling solution. As opposed to requiring energy-guzzling computers to solve puzzles to verify transactions, PoS simply requires individuals to stake their crypto in order to participate in validating transactions to earn rewards.

As noted previously, a few popular PoS blockchains include Tezos, Flow, Solana and Polygon. Tezos in particular has garnered significant attention for its low use of energy — for an easy comparison, 50 million transactions on Tezos produces carbon emissions of just 17 global citizens.

Related: Proof-of-stake or proof-of-work, that is the question

Further, one of the leading blockchains in the NFT ecosystem — Ethereum — will soon transition from a PoW to PoS system. According to the Ethereum Foundation, the network’s upcoming switch from PoW to PoS, rumored to be coming this fall, will allow it to become roughly 2000 times more energy efficient and reduce total energy use by 99.95%.

Sidechains and layer-2 solutions

Another alternative to circumvent the excessive energy consumption of PoW is sidechains, which are independent blockchains that operate parallel to mainchains like Ethereum. This independence allows sidechains to enact their own rules surrounding transactions, security and governance. Since sidechains don’t have to rely on a distributed network of computers to verify transactions, their carbon footprint is greatly reduced.

A great example of a popular sidechain in the NFT space is Polygon. Notably, Polygon is also a layer-2 solution, or a third-party protocol, which supports the Ethereum mainchain by improving transaction speed and gas efficiency. The community-governed nature offered by many of these sidechains is particularly well aligned with creators and developers who seek to build mutually beneficial economies with their fans, making sidechains a compelling option for those entering the crypto space.

Carbon neutrality

Regardless of whether a project utilizes PoW, PoS or sidechains, it is important that they acknowledge and maintain accountability for their carbon footprint.

There are many ways that projects can make a dedicated effort toward attaining carbon neutrality, such as implementing carbon offsets through integrations with carbon removal projects. Take, for example, Rarible’s integration with popular carbon removal marketplace Nori earlier this year, which allows anyone to offset carbon footprints for most Ethereum NFTs listed on Rarible.

With these factors in mind, it is important that artists conduct their due diligence to make sure they are choosing to mint with NFT marketplaces and projects that uphold their values.

Related: ​​Green finance needs voluntary carbon markets that work

While some have minted NFTs as a cash-grab without regard for the environment, this characterization misrepresents the community-focused intentions of the Web3 futurists and innovators behind the technology. By adopting environmentally-friendly, utility-driven NFTs, artists can unlock a new realm of possibilities for building connections and sharing value with their fans.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.