During the current bull run, we’ve seen investors exploit a large number of options to make profits with cryptocurrencies, such as options trading with Bitlevex.
However, while crypto trading has been the go-to opportunity for investors to take part in this market, there are some very profitable opportunities that have emerged in the past year.
One of the most debated opportunities as of late are non-fungible tokens (NFTs). While these have provided a great opportunity for artists and gamers to make a profit from their craft, they have triggered their fair share of controversies in the process.
In this short post, we try to answer how bad are NFTs for the environment and whether something can be done to alleviate this concern. But first, let’s have a quick overview of the technology in question.
What are NFTs?
NFTs are crypto assets that represent unique digital items. Thanks to the implementation of smart contracts, we can now tokenize anything of value. So, NFTs can be used to digitally represent art pieces, collectibles, even real estate.
The blockchain technology behind these NFTs allows for them to be quickly and securely exchanged over the internet. All of this for a fraction of the price that you would need to transport, a painting, for example.
Moreover, a very important aspect of NFTs is that they provide proof of ownership. The distributed ledger is accessible to anyone and the origin and ownership of the NFT can be easily verified.
The controversy around NFTs’ impact on the environment
With that being said, there has been a lot of controversy around recent NFT popularity. The main reason behind this is that almost all of the NFTs that are traded on popular marketplaces such as Opensea or SuperRare are Ethereum-based.
The issue with this is that the Ethereum blockchain still uses a proof-of-work model to validate transactions. You see, PoW blockchains work as follows:
- An NFT transaction is requested on the blockchain.
- The transaction is grouped in a new block of transactions that needs to be discovered by miners.
- Miners solve mathematical problems to discover this new block and add it to the blockchain.
- Miners are rewarded with newly created ETH tokens and the transaction fees of the block for their effort.
Miners are powerful computers that require enormous amounts of electricity to function. So, minting an NFT and transferring it to another user, while practical, can be very energy-inefficient.
Is there a solution?
While the concerns are warranted, a number of solutions are coming to the NFT ecosystem:
- Ethereum is migrating to a proof-of-stake consensus mechanism. This means that in 2022, the energy consumption of the Ethereum network should be reduced by as much as 99%.
- There are competing blockchains that offer an energy-efficient creation of NFTs. While Ethereum remains the most popular, environmentally concerned artists can opt for working PoS blockchains such as the Binance Smart Chain or Tezos.
- The entire mining industry is slowly embracing renewable energy. This is true even for Chinese-based mining farms that were notorious for their usage of dirty power sources.
NFTs are one of the best use cases of smart contract technology. They provide a streamlined way to exchange, valuable and unique assets over the internet. They can allow artists to sell their digital works all over the globe and avoid tedious red tape procedures.
While the environmental impact of NFTs is a good source for debate, it’s worth noting is that energy-efficient solutions are well on their way. These should allow for a cheaper, faster, and cleaner NFT marketplace in the near future.