Warning: this may make you want to dust off your old Pokemon card collection. According to very reliable internet sources, the most valuable Pokemon Card in history is the “Pikachu Illustrator.” Depicting the lovable mascot holding a quill and a pen (does Pikachu even have thumbs?), a mint condition card was auctioned for approximately $225,000 in October 2019. A purchase that would be suspect to many, the price was most likely influenced by the good ol’ law of supply and demand. Only 39 copies exist. If you consider the portion of these 39 copies that weren’t smeared with chocolate or chewed by a dog, this high price tag starts to have the tiniest semblance of logic. With very little supply, financially-savvy individuals are quick to throw in their life savings. We can observe the same phenomena occurring with today’s Non-Fungible Tokens (NFTs).
On a very high level, a non-fungible token is a digital item (e.g. a piece of art) that is unique —it cannot be replaced. Imagine the same Pikachu Illustrator Pokemon Card but only one copy exists in this universe. NFTs are part of a blockchain (usually the Ethereum blockchain) which allows the NFT owner the right to transfer the token to your digital wallet. Due to the uniqueness and consequent rarity of NFTs, some folks are paying hundreds of thousands and even millions to own these tokens. A notable transaction occurred in March 2021 where Mike Winkelmann (street name: Beeple) sold a mosaic of over 5,000 images for 69 million dollars. Beeple claims that his digital artwork will be either carbon neutral or negative. This begs the question of the environmental impact of not only blockchain but NFTs in particular. Are NFTs destroying our environment?
The short answer? Most likely. The newness of blockchain and NFTs limits readily available literature on blockchain, NFTs, and consequent greenhouse gas emissions. According to Digiconomist, an average Ethereum transaction requires 73 kWh of electricity, which can be equated to 35 kgCO2 of emissions.1 To put this into perspective, this is equivalent to approximately 3.5 days of electricity consumption for an average home in Alberta.2 This emissions intensity is mostly due to the computing power required for the consensus algorithm that builds the foundation for cryptocurrencies such as Ethereum. Overall, Digiconomist estimates Ethereum to consume 34.84 TWh per year, ranking it as the 61st highest energy consumer in the world if it was a country, ranked above Oman and Denmark.
Relating this to NFTs, Memo Akten estimates that the footprint of an NFT Transaction on SuperRare, a popular NFT marketplace, is approximately 340 kWh or 211 kgCO2 of emissions3. Although I have some questions about his methodology (I’m happy to nerd out about this with you offline), it would be an understatement to say that this is alarming. Using this information with the fact that the NFT marketplace is as hot as GameStop stock was in the last week of January, it would be reasonable to say that this is an issue that needs to be addressed sooner rather than later–especially considering the current climate crisis that we are in.
My thoughts? I have a few ideas:
1) Advocate for transparency in the NFT marketplace. An onus should be placed on marketplaces to either provide an estimate of the carbon footprint related to NFT transactions or provide data that would allow these estimates to be produced by academia. Right now, the actual carbon footprint of NFTs is being treated as a black box. Consumers need to be aware of what’s going on so they can make decisions they’re comfortable with.
2) Improve Ethereum’s algorithm into a more energy-efficient algorithm (transition it to implement proof of stake as opposed to proof of work). This would be considered a tall order. As an engineer, I am comfortable saying that I don’t know what this would even look like. However, if we can transition Ethereum into an algorithm that continues to provide the benefits of blockchain (e.g. privacy, security, etc.) in a cleaner, less emissions-intensive manner, it would target the root cause of this issue. This is already in the works, so the community is excited to see this being finalized in the future.
3) Promote the implementation of renewable-powered electricity generation. The GHG emissions intensity of Ethereum is a function of the emissions intensity of the electricity grid that supplies energy to the infrastructure that allows these transactions to occur in the first place. Theoretically, miners would go to areas where electricity is cheap – luckily enough, hydropower is pretty affordable in areas like Sichuan, China, where a lot of mining activity occurs. This approach is reasonable, but it elicits the question of whether the development of renewable electricity is fast enough before we shoot ourselves in the foot.
4) Offset GHG emissions through carbon offsets. This would be the most readily available situation that would allow artists, consumers, and marketplaces some comfort in NFTs and their GHG emissions. Carbon offsets provide the opportunity to “offset” some, all, or even more of the GHG emissions attributed to NFT transactions. What is really comforting to see is that some NFT Artists are embarking on making this industry cleaner. The 69-million-dollar auction I mentioned? It is part of the Carbon Drop, which aims to divert all proceeds generated to carbon offsets and the Open Earth Foundation.4
It is imperative that we pay close collective attention to blockchain and NFTs and their contribution to climate change. With transactions such as the Beeple sale successfully netting 69 million dollars, this technology shows no signs of stopping anytime soon. We can bet that this sector is only beginning to take off.
As a result, Bluesource is keeping a close eye on this space. We’ve already seen some leaders emerge in the discussions of environmental impact; recently, Bluesource provided 6,000 tons of carbon offset credits to Art Blocks, a platform that allows artists to store their work through NFTs. Art Blocks is eager to lead the industry toward a more climate-friendly future. As the industry gains more momentum economically, they appear to be gaining in environmental interest as well—an exciting development for such an energy-intensive sector.
As more of these transactions occur, it is becoming increasingly difficult to ignore the impact this has on the first non-fungible item that we’ve had all along- the planet we live in.
References + Further Reading