Are NFTs bad for the environment?

If non-fungible tokens (NFTs) once were considered bad for the environment because of the electricity they consumed, there is much less reason to worry now.

NFTs are unique digital assets, often representing artwork, music releases and in-game purchases. One thing that has improved NFT energy consumption is the sharp drop in the NFT market since the peak around 2022. Once measured in the billions, revenue in the NFT market is expected to hit $684 million in 2024 and drop 11% in 2025.

NFTevening, a news platform covering NFTs, blockchain gaming and the Metaverse, did a study that says 95% of NFTs are dead, meaning zero trading activity, no sales in over seven days and complete silence on social media. The massive growth that was expected in NFTs, and a consequent need for more energy, has evaporated.

A second major development has given NFTs a more sustainable future — a shift in the way most NFTs are managed to a less energy-intensive process. In this article, we'll explore these new developments and the impact of NFTs on the environment.

NFTs and energy

The first thing to note about NFTs’ energy use is that it’s not perfectly traceable. NFTs operate by a multi-step process. First, the tokenized item has to be minted, or published on the blockchain. Once there, the digital file can be auctioned or traded. The validation of this information for the blockchain is where the most energy is expended and greenhouse gas emissions might be generated.

There are many methods for validating transactions on a blockchain network, but two key consensus mechanisms are Proof of Work and Proof of Stake.

In PoW, miners compete for the right to verify transactions by racing to be first to solve a complex mathematical puzzle. The rewards for winning are lucrative, so miners invest heavily to build data centers with the computational power needed to solve the puzzles. Massive amounts of electricity are being used around the world to power mining operations.

Bitcoin, the cryptocurrency leader, uses PoW. Ethereum, a giant in the NFT field, started with PoW, but made the entire industry more eco-friendly by shifting to a new consensus mechanism.

Ethereum – The Merge

Ethereum is the decentralized blockchain network that has been, and still is, the dominant platform for NFTs, as well as for smart contracts and major cryptocurrencies not named Bitcoin.

Before September 2022, Ethereum used a Proof of Work consensus mechanism and had an energy consumption peak of 94 TWh per year, as much or more than some countries.

That month, driven by concerns including the carbon emissions that resulted from its energy-intensive process, Ethereum switched to a Proof of Stake mechanism. After the change from PoW to PoS, called the Merge, Ethereum saw its carbon footprint drop by 99%.

Now, with PoS, Ethereum uses less energy every year than the Eiffel Tower and about 35 times less energy than American Express.

PoS networks rely on validators who are chosen based on the amount of cryptocurrency they hold and are willing to stake. The more coins a validator stakes, the higher their chances of being selected and earning rewards. Since PoS doesn’t rely on solving computational puzzles, it requires significantly less energy than PoW.

Hedera Hashgraph, a PoS-like consensus mechanism, is designed for maximum energy efficiency. Each transaction consumes a tiny fraction of the energy required for a Bitcoin PoW-backed transaction. Even among PoS systems, Hedera uses hundreds or thousands of times less energy than other systems. 

Ethereum’s switch to PoS has largely separated NFTs entanglement with mining operations’ electricity use and the electronic waste created as they update their hardware on a regular basis to stay competitive.

Other energy friendly systems for NFTs

Ethereum 2.0 isn’t the only environmental ally of crypto art. Many NFT marketplaces prioritize carbon neutrality and, in Hedera’s case, even carbon negativity. Here are some techniques and case studies of how platforms can reduce their NFT environmental impact.

Green energy

One way to reduce a blockchain network's carbon footprint is for its operations to be fueled by renewable energy. For Bitcoin, that would mean moving mining operations to areas with plenty of clean energy. However, using renewable resources doesn't negate the fact that they use much more energy than other systems.

Batching, a green technology

The preliminary workings of NFT transactions don’t need to be stored directly on the blockchain. Batching is the process of using side chains or second layers to run alongside the primary blockchain during NFT processing.

Let’s say a piece of digital art is up for auction and 100 people bid on it. Normally, each individual bid would be stored as a data point on the blockchain. But with batching, those bids are instead bundled onto a side chain, reducing from 100 data points down to one. Similarly, a large number of NFT transactions can be reduced to a single blockchain transaction without necessarily influencing processing speed or gas fees.

Hedera

Hedera uses the most energy-efficient consensus mechanism possible, through its directed acyclic graphs (DAGs) form of distributed ledger and proof of stake consensus algorithm. Hedera pledged in 2021 to become carbon negative through quarterly carbon offset purchases, while still offering stable transaction fees.

IMPT

IMPT is an NFT marketplace that uses a carbon credit ecosystem to contribute to environmentally friendly efforts. Consumers can buy their tokens, which are NFT carbon offsets, and then trade these carbon credits on the secondary market.

Coorest

The Coorest project takes an innovative approach to carbon sequestration by digitizing tree planting initiatives. Coorest says that every NFT you buy through them is the real-world equivalent of planting 10 trees. The project also tokenizes wildlife in nature reserves to ensure the continued existence of endangered animals and collaborates with popular artists to sell NFTs for sustainable practices projects.

Are NFTs bad for the environment? We think not.

The NFT industry has had a mixed record on climate change and environmental consciousness. But the picture has changed for the better. Even pre-Merge, corners of the crypto world have been pioneering means to minimize their carbon footprint. Hedera and others are going further, focusing efforts on being more energy efficient and even removing carbon from the atmosphere.

Now, NFT activity has declined significantly, a PoS system underlies most NFT transactions, and environmental consumers continue to push marketplaces in the right direction. One cause of concern is that Bitcoin has developed its own form of NFTs, called ordinal NFTs. If these become popular it will bring back the high energy consumption associated with Proof of Work to NFTs. Meanwhile, developers continue to work on ways to make sure that NFTs are not bad for the environment.