It’s been impossible not to hear about NFTs and Cryptocurrency in the last few months. More and more people are investing their time and (loads of) money in the two, and there is growing confidence in and acceptance of these digital alternatives.
But as things get bigger, their shortcomings start to come into view too. There has recently been much talk about how Bitcoin and NFTs have a massive negative impact on the environment, one that's been weighing the technology down.
Here is a statement off Elon Musk’s Twitter, someone who has been sending crypto prices prices up, down and everywhere, with just his tweets.
But first, some basics
Before we talk about the environmental impact, it’s important to understand these avenues better. A lot of us still don’t get what exactly these things are (they hella complicated), as well as terms like bitcoin mining, that are the crux of the problem.
So if you aren’t aware of the workings of Crypto and NFTs here are a few videos to get you started:
Okay, we’ll try to explain. Here we go, phew.
- Cryptocurrencies like Bitcoin and Etherium (oh and Dogecoin) are digital alternatives to regular money. Regular money is centralized by banks and governments, but cryptocurrencies are not.
- Bitcoin, like gold, is a finite source. The system is designed such that there can only be 21 million bitcoins. And no more.
- Banks maintain a ledger of transactions when it comes to regular money. Only they can access it and they have full control. Cryptocurrencies are an alternative to this. They have a decentralized ledger that anyone can access.
- These are called cryptocurrencies because of the encryption techniques which are used to secure the network.
A view of the several computers in a bitcoin mine- Image source Forbes
- Anyone with a computer system can be a banker in the world of cryptocurrencies. Which means they can help process transactions and in turn receive bitcoin as a reward too. These people are called miners.
- While most people just trade in already available bitcoin, miners mine new coins. There are in fact mine farms that do this at a larger scale.
- Miners do this by using computers that solve extremely complex computational math problems. Many years ago you could mine coins using a PC, but today you need extremely powerful and sophisticated computers to do this.
Here’s why. The system is designed such that it is harder to get new coins as there are more coins in the world. As of today 18.5 million bitcoins have already been mined, so you can imagine it must be exceedingly harder to find new bitcoins today.
Sounds good. What’s the problem?
The statement above is. Most technologies get more sustainable with time. But bitcoins (and most other cryptocurrencies) get more unsustainable with time.
Because it gets harder to mine bitcoin with time, the systems used for these computations get more and more sophisticated and energy consuming. The high consumption of energy by these mining farms has become a source of concern, and it has in fact turned a completely digital medium into one that’s probably fueling climate change.
“Bitcoin-mining operations worldwide now use energy at the rate of nearly a hundred and twenty terawatt-hours per year. This is about the annual domestic electricity consumption of the entire nation of Sweden.
- The New Yorker
To put the scale in perspective, according to the website Digiconomist, a single bitcoin transaction uses the same amount of power that the average American household consumes in a month, and is responsible for roughly a million times more carbon emissions than a single Visa transaction.
A lot of these farms chase cheaper electricity and end up getting theirs from coal and other unsustainable sources, further adding to carbon emissions
And what about NFTs?
NFTs (Non-Fungible Tokens) run into similar problems. NFTs are digital art pieces. Unlike physical art, the problem with digital art is that anyone can save a copy. Well NFT solves that problem. Here, with digital art you get a unique digital token known as an NFT. Every NFT is unique. With NFTs, artwork can be "tokenised" to create a digital certificate of ownership that can be bought and sold.
One of the most popular NFTs in the market - Nyan cat
However, the process of creating this token and the transaction itself, again uses computations similar to those in cryptocurrency. (This is again oversimplified, but you may google blockchain technology used in cryptocurrency to understand what we mean by “computations”. NFTs use cryptocurrency as a platform, so they’re linked.)
Ummm so these things are evil?
Nooooo. Cryptocurrencies are decentralizing money control like never before. They are making investment easy for everyone and not just a few privileged ones. Similarly NFTs are getting digital artists their due credit. It’s been hard to earn the kind of money that regular artists do for digital artists and NFTs make it possible.
Both technologies are directing us towards a more equal, inclusive and decentralized future. Not to mention a thrilling and exciting one.
But the environment cost cannot be ignored.
It’s not like regular art and money don’t have carbon footprints at all. There is transportation, printing, and more. It’s just that we expect more from mediums of the future. And that the emissions are more per transaction, even though these are smaller in scale as compared to regular money.
Where does it go from here?
New platforms that are more energy efficient are actively being discovered. Many are trying to create solutions that address these issues. Many have even put out a reward for those to come up with something more energy efficient. There have been talks about Ethereum 2.0 too.
“The shift to "Ethereum 2.0" could reduce the energy consumption of NFTs by 99%, because proof of stake has basically no emissions”
So we could in fact live in a world where some cryptocurrencies are more environment friendly than others. It’s distant, but it’s something.
What’s the most promising bit though, is accountability.
Since these facts have come into limelight, artists, investors etc. have been taking responsibility. There are now websites that let you calculate the carbon footprints of your transactions. People want to understand the impact of these more and more and that’s promising.
A lot of artists who could be minting money with NFTs are choosing not to do so, until there is a better solution. Some bigger corporations have also spoken about offsetting carbon emissions caused by crypto. So whatever they burn by mining, they make up for, by participating in greener activities.
It’s a good thing that today we are minutely assessing even things that may seem green, simply because they're digital. We aren’t taking anything for granted. At the end, we may not have an immediate solution yet, but sometimes the fact that the world is actually trying to find one actively is hope enough.