In the simplest terms, NFTs transform digital works of art and other collectibles into one-of-a-kind, verifiable assets that are easy to trade on the blockchain. Although that may be far from simple for the uninitiated to understand, the payoff has been huge for many artists, musicians, influencers, and the like, with investors spending top dollar to own NFT versions of digital images. For example, Jack Dorsey’s first tweet is now bidding for $2.5 million, a video clip of a LeBron James slam dunk sold for over $200,000, and a decade-old “Nyan Cat” GIF went for $600,000.
But NFTs aren’t exactly new. CryptoKitties, a digital trading game on the cryptocurrency platform Ethereum, was one of the original NFTs, allowing people to purchase and sell virtual cats that were both unique and stored on the blockchain. So why is the NFT phenomenon taking off now? You can learn that here.
The Enviromental Cost of NFTs
Digital collectibles and artworks minted via a cryptocurrency-esque token, or non-fungible tokens, are posing a new problem for investors and art dealers alike as they rise in popularity. Authenticated using blockchain technology, original copies of these one-of-a-kind digital items are stored and sold using a token that acts as proof of ownership. But the token comes with a hefty environmental footprint attached since it is created by a mining process similar to that of cryptocurrencies like bitcoin. NFTs are also often sold in exchange for ether, a crypto asset that comes with its own sizeable mining impact.
NFT art has a dirty secret: most is stored in the blockchain of the Ethereum cryptocurrency, which has a heavy carbon footprint. Its annual energy use is on par with entire New Zealand. The Ethereum cryptocurrency consumes as much as 41.6 TWh/yr and has a carbon footprint of 19.76 Mt CO2 which as much as entire Bolivia.
The exact environmental impact of any artwork, both in its sale via ether and the creation of its NFT, is unclear. However, some calculations about other developments in the space can provide context. French artist Joanie Lemercier, who released six crypto artworks via an NFT in November, calculated that the minting of his series on blockchain consumed in 10 seconds more electricity than his entire art studio did over the past two years. That figure doesn’t even take into account the energy it took to mine the $3,325 in the ether for which the NFT was sold. To put it in perspective, each transaction made on Ethereum is equivalent to the power consumption of an average U.S. household over 2.6 days. The carbon footprint of one transaction alone is equivalent to the carbon footprint of 81,140 VISA transactions or 6,102 hours of watching Youtube. Now, you realize the cost?
Unlike bitcoin, ether’s supply is limitless, with its supply schedule determined by members of the community based on the minimum amount required to secure the network it runs on. Though an update to ether’s protocol to make it more sustainable has long been promised, only the first step of three major changes has taken place to date — with energy-intensive mining not expected to end until sometime next year.
The WEF in an article said,
Green-minded collectors might look for pieces that avoid Ethereum and instead use lower-carbon systems – or avoid NFT altogether.– Sonia Elks, Journalist – Reuters (Published on World Economic Forum)
So, What’s The Alternative?
Basilica’s Originality Algorithm
Before the widespread onset of the NFT trend, we were dealing in Digital Art and one of the major considerations while doing so was the safety and trust of the works as well as the environmental impact of it all. We designed our Originality Algorithm to ensure that the integrity of the work is kept intact. It is a three-layered protection mechanism designed to protect digital art without costing the planet a fortune. You can read more about it here.
In comparison to Ethereum and other leading digital art selling platforms, Basilica Art House reports a far lesser energy consumption and carbon footprint. This is primarily because Basilica’s Originality Algorithm minimizes nodes and maximizes security for a unique buyer. On average, our online platform consumes only 0.10 KWh per transaction and emits 0.03 Tonnes of CO2 every year. This emission and consumption are also squared off by other green initiatives by the company. In this regard, on a well-optimized day, we could fit over 100 transactions within the same energy usage as 1 transaction on Ethereum.
Basilica’s Originality Algorithm is not only safe and secure in terms of digital art transactions but also highly efficient when it comes to preserving nature. We ar guilty of making NFT transactions too but that only happens when we are locked in to do so. Our aim is to preserve the rights of our artists, our seller, and our buyers while protecting mother nature. This happens to be the primary reason why we have great working ties with ESG-conscious investors and collectors.
Digital Art & ESG
There is no denying the sheer consumption of electricity and emission the current NFT boom has brought upon us. Carbon offsetting is a proposed method but is not efficient enough. With this in mind, is it possible for investors to reconcile the carbon impact of NFTs with their own environmental, social, and governance targets? The likely answer, for the moment, is no. This is a problem already under consideration for funds, institutional investors, and corporate entities seeking to cash in on the rise of cryptocurrencies such as bitcoin and NFTs. However, we do have a glimmer of hope in terms of the Originality Algorithm where investors and organizations can meet their ESG targets as well as invest in the art they love. We strive to improve and build upon this foundation and create an efficient system for the trading and collection of art.
NFTs also cater to the “social” aspects of ESG — democratising access to ownership and enabling artists to continue benefiting from future sales of their work via code that automatically allocates them a portion of the proceeds each time. In additio, it adds multiple layers of governance such as verifiability and ownernship management. Fractionalizations seems to add to that. Overall, NFTs aren’t the villain, its the villain’s sidekick, ethereum, that happens to hurt the environment a little but you cannot deny the greater good it brings to the capital market. We are positive that over time, we will build far more energy efficient blockchain systems and improve giant networks such as Ethereum. For now, you can go back to the ESG drawing board and re-strategize your holdings.