Tons of Power Consumption
We already know how energy inefficient some crypto coins are. The BBC famously reported that Bitcoin's blockchain consumes more power than the South American country of Argentina. These NFTs are likely to exacerbate the problem. One of the best examples of this particular problem is examining the recent sale of a few NFTs from Joanie Lemercier. Lemercier's work is well-known in artistic circles because of his ability to bend light in his physical installations. What's less known is his forays into energy conservation. Over time, Lemercier has managed to reduce power consumption in his art studio by 10% per year.
Would you pay over $7 million for this “CryptoPunk 7804” JPG? That's how much it got last month. Credit via Larva Lab
His recent NFT release managed to undo all that hard work through a few sales. Posted on a website called Nifty Gateway, his pieces were an homage to the light-bending sculptures he was well-known for in the real world. The images were 3D rendered and aimed to produce the same effect. Within a few hours, the NFT was sold out, gathering thousands of dollars as a result. The website Crypto Art noted that the transactions associated with this particular NFT have currently consumed over 10.1 megawatt-hours of energy, far surpassing Lermercier's energy usage in his studio yearly.
The Rise of the NFT
This development is concerning based on how many high-profile NFT sales have come up in recent weeks. Since many artists and creators are looking at a decentralized way to make money, NFTs are a perfect solution for them. The downside is that, with each sale, the blockchain needs to calculate and verify the transactions, taking up megawatt-hours of electricity that consumes fossil fuels. It's not just big-name artists either.
There's a massively booming business of collecting small TikTok-length videos and flipping them online for a small profit every transaction. For those who are outside of the collectors market, spending so much money on digital assets makes no sense. Yet, many of us do the same when buying digital goods through in-game purchases and think nothing of it. Those digital assets are simply copies of a master asset, yet NFTs represent a unique asset, making them far more valuable.
The power of the NFT is that it gives you a unique copy of something. It's owning something that comes from someone famous that's part of the thrill for a collector. An original Van Gogh can quickly sell for several million dollars, while a reproduction you get from Amazon hanging over your TV might be worth less than thirty bucks. NFTs offer a way for artists to distinguish between original artworks and a copy. Before this, all digital files could be interchangeable, and a copy of an original didn't have many differences from the original. NFTs allow collectors to say with pride that this digital asset, linked via this token and verified independently on the network, has a history that they can trace from the originator to them.
The prices are what you'd expect for collectible pieces of art. They're no Van Goghs, but they are still costly.
A Questionable Tradeoff
To understand how NFTs and the blockchains that use them impact the energy consumption question, we must look at how these NFTs are verified. When you buy Bitcoin (for example), your sales have to be confirmed on the blockchain as ownership is transferred to you. Transactions on a blockchain are verified through a process called mining. They pay "miners" for their processing power by creating new currency every now and again for completed work. This processing power comes from chips that need electricity to run.
There's no certainty about how much energy that goes into mining comes from renewable sources, with some estimates putting this value at around 70%. However, by tracing the electricity use and extrapolating outward, one can get a pretty clear view of how much power it consumes. Some sources contend that looking at direct power consumption could be misleading. Even so, the numbers are staggering.
Lemercier and other artists would prefer if these blockchains adopted more energy-efficient means of verification. Still, it may be a while before we see new blockchains built with that result in mind. What's more likely is that renewable energy production may start to overtake fossil fuels, reducing blockchains' overall impact on the planet. If we intend to keep using this technology, we may need to switch our power generation sources over to avoid catastrophic climate change.