If you’ve recently heard talk concerning NFTs or Non-Fungible Tokens, but aren’t exactly sure what everyone is talking about, you are not alone. While NFTs have technically been around since 2014, they did not hit an extreme spike in popularity until the past year.
What is an NFT?
If you have heard of and understand what cryptocurrency is, comprehending what an NFT is should be fairly simple. Like crypto, NFTs are digital assets and they are created using the same sort of programming that is used to create Bitcoin and other forms of crypto. The main difference between crypto and NFTs is that they are “Non-Fungible”, whereas Bitcoin and other forms of crypto are fungible. Cryptocurrency being fungible means that every piece of one type of crypto is equal to another. They can also be easily and seamlessly traded for one another because of their equal value. One Bitcoin equals the value for another and can be traded for another Bitcoin. One NFT cannot be traded for another NFT. They are one of a kind and unequal in value, so therefore they are “Non-Fungible”.
Also, NFTs are typically digital collectibles. They are often purchased with cryptocurrency. They are pieces of art, music, videos, and other online items. If they are not created as a one-of-a-kind item, they are created as an extremely limited group of digital items. And— when you own the right to an NFT, you are the sole owner of that digital asset. This is also what makes NFTs different from other digital creations. With other pieces of digital art that are not NFTs, there is almost an endless supply of that art or music piece. The programming that makes an NFT unique is not used with other forms of digital art. Other forms of digital art can be created and duplicated over and over again.
NFTs have accumulated over 174 million dollars since November 2017. NFTs have been given high value because of their uniqueness and the ability to be the sole owner of the asset. For example, Beeple (Mike Winklemann), is a digital artist. He created a piece titled “Everydays: The First 500 Days”. It is a collection of daily drawings that he compiled together to create an NFT that sold for 69.3 million dollars. The co-founder of Twitter, Jack Dorsey, sold his first tweet ever for over 2.9 million dollars. It was sold as an NFT, so one person solely owns the first tweet of one of the men who created Twitter. For $208,000, someone was able to purchase a one-of-a-kind digital trading card of an iconic Lebron James slam dunk.
It’s Digital. How is it Bad for the Environment?
To the untrained eye, NFTs might seem like a way for talented and hard-working artists to be compensated well for their art. It can be – the artist receives a portion of the sale every time their art work is bought or sold. However, NFTs and the power used to mine and store them negatively affects the environment.
How? Well, NFTs use Blockchain technology. This technology (also used by cryptocurrency) uses a lot of power. The creation of an NFT from a real-life piece of art or a digital item consumes a significant amount of power. And every time the NFT is bought or sold- more significant amounts of power are used to complete the sale. NFTs are typically sold through Ethereum. This system is what helps keep NFTs so secure. The programming used ensures that the item cannot be duplicated or stolen, but while doing so, also sucks up a significant amount of power.
Ethereum depends on a system called “proof of work”. This “proof of work” ensures that the sales are valid, but also has been stated to use as much power as the country of Libya. “Blocks” are added to the chain in a way that was intended to be energy insufficient. The logic with intention energy insufficiency is that fewer people would be willing to attempt invalid transactions at a cost of a significant amount of their power. They have to pay for their electric bill. It’s what makes the purchase and sale of NFTs and cryptocurrency so secure, but also what causes critics and skeptics to be critical of the digital assets overall. The more popular and valuable that NFTs become, the more that NFTs will be mined, sold, and bought. Which will lead to an increased amount of harmful emissions released through the energy used to do so.
Proof of Stake
Some of those in favor of NFTs, but not in favor of “Proof of Work” systems and the impact they have on the environment have proposed other forms of keeping NFT creations and transactions valid and secure. “Proof of Stake” is another method that has been proposed and would result in decreased emissions. Instead of proving validity by sacrificing a significant amount of their own power, they have to prove they have “stake” in the transaction. This means that they would “lock up” a portion of their own cryptocurrency or some other form of digital token that would be lost if the transaction proved to be invalid. Just like “Proof of Work”, “Proof of Stake” has the power to prevent unethical behavior, but does not result in a significant amount of power used in a single transaction.
NFTs are primarily programmed through Ethereum. Ethereum has been teasing for several years that they would eventually switch to a “Proof of Stake” system. The problem with the switch is that those involved in NFTs would all need to agree on the switch to another system. If not, the whole system could entirely collapse. The entire system has been based on valuing the amount of power that is utilized during the trade. “Proof of Stake” would change the core of the value and transactions. But– just to reiterate, the amount of power used to power Ethereum and NFTs is the same amount of power used to keep a small country running. This change in value may dissuade many users and systems from wanting to make the switch, but with the amount of power used with a “Proof of Work” system, the entire system might collapse anyways — along with our environment.