Interest and sales of non-fungible tokens (NFTs) have experienced fluctuating trends since the first NFT was minted in 2014. That initial token, a piece of digital art titled Quantum, was a video created by Kevin and Jennifer McCoy, and it was registered on the Namecoin blockchain. The creation of this NFT was driven by a desire to establish ownership of digital art, with Kevin McCoy working alongside technologist Anil Dash to develop a blockchain-based record of ownership.
The NFT market gained immense popularity in the early 2020s, fueled by intense interest in culturally significant digital assets like CryptoPunks and Bored Ape Yacht Club characters. Although the initial frenzy has subsided, experts expect continued growth in the market. Grand View Research has estimated the global NFT market will be worth approximately $26.9 billion in 2023, and it forecasts an increase to around $211.7 billion by 2030.
Despite this anticipated growth, the digital nature of NFTs raises questions about their material impacts. Ownership, buying, selling, and storing NFTs consume considerable energy and computing power, resulting in a significant environmental footprint. “An NFT lives in a computer, so as long as it’s on the blockchain, as long as it’s online, it consumes electricity,” stated Marc Lijour, IEEE Blockchain Regional Coordinator for the U.S. and Canada. This reality, coupled with rising concerns about the energy consumption related to artificial intelligence and other digital technologies, brings the environmental consequences of NFTs into sharp focus.
NFTs, akin to cryptocurrencies, have their ownership recorded on a blockchain. Unlike cryptocurrencies, which are interchangeable, each NFT is a unique digital asset. During the minting process, NFTs are published as tokens on a blockchain network, allowing for their ownership and transactions to be validated and recorded through immutable identifiers. While NFTs are often associated with digital art, they also encompass music, videos, in-game items, and collectibles. Future applications may include event tickets, diplomas, and real-world property deeds, suggesting a broader potential for NFTs beyond their current use cases.
As the NFT market expands, sustainability concerns grow correspondingly. The energy consumption associated with NFTs spans their lifecycle—from minting and transactions to ongoing online storage. “Whenever a transaction occurs with an NFT, it has some sort of energy consumption associated with it,” explained Ari Lightman, a distinguished professor at Carnegie Mellon University. The consensus mechanism used by different blockchains plays a crucial role in determining their energy intensity.
Blockchains utilizing a proof-of-work (PoW) consensus mechanism, like Bitcoin, tend to be more energy-intensive. PoW requires miners to solve complex problems, demanding substantial computing power and energy. Conversely, proof-of-stake (PoS) mechanisms, which Ethereum transitioned to in September 2022 during its Ethereum Merge, require less computational energy and have led to a drastic reduction in Ethereum’s electricity consumption, by as much as 99.99%.
The energy profile of NFT transactions varies depending on the blockchain used. Ethereum supports the majority of NFTs, but others like Bitcoin, Polygon, Solana, and BNB also host NFT markets. The multiple variables involved complicate the precise calculation of NFTs’ environmental impact. However, experts argue that PoS blockchains exhibit more efficient transaction processing, contributing to lower overall energy consumption.
Scott Likens, chief AI engineer at PwC, noted that consumers today are increasingly aware of the energy implications of their digital activities, including NFTs. The availability of information regarding the sustainability of different blockchain networks allows users to make more informed choices, which in turn impacts market dynamics. Yet, the lack of precise data around NFTs’ energy use still hampers fully informed decision-making.
As the market moves towards sustainability, innovations in blockchain technology are anticipated to improve energy efficiency and reduce environmental impact. “There is an incentive to be more efficient and lower impact,” said Preston Fischer, managing director at FTI Consulting. This trend suggests that the NFT ecosystem is evolving, with a focus on minimizing its ecological footprint while still enabling the growth of digital ownership.
