Non-fungible tokens (NFTs) have always had an environmental impact controversy swirling around them as the minting of these digital innovations is a highly energy-intensive process. At the same time, many in the industry are talking about moving to green NFTs or making the future of digital assets sustainable. But many questions remain unanswered. How far are we from a sustainable future? Are green NFTs really green? And can both types of NFTs coexist?
Before addressing these questions, let’s understand the difference between normal NFTs and green NFTs.
By definition, NFTs are digital assets on a blockchain with unique identification codes that distinguish them from each other. An NFT can be any type of digital file, including an artwork, an article, music or even a meme. NFTs have taken a form beyond art as brands are utilising these digital assets to provide customers with unique experiences. These unique digital assets have gained immense popularity recently at a global level.
Most NFTs are minted on proof-of-work (PoW) blockchains that require tremendous amounts of computing power for their mining process. One such example is NFTs built on the Ethereum blockchain.
Per data provided by the Ethereum Energy Consumption Index, every NFT created on the Ethereum blockchain consumes 223.85 kilowatt-hours of electricity.
Studies have also indicated that a single NFT transaction on the PoW Ethereum blockchain releases 124.86 kg of carbon dioxide.
On the other hand, ‘impact’ or green NFTs are minted on a proof of stake (PoS) blockchain or by using a negligible carbon minting process. This ensures that a token is environmentally considerate and may even be climate positive.
The proof-of-stake blockchains do not require miners to devote immense amounts of computing power. Instead, miners are required to pledge cryptocurrency to the network to qualify as transaction validators.
It is known that Ethereum is also about to shift to a proof of stake mechanism in its Ethereum 2.0 update. However, the date of the update has not been fixed yet.
An impact NFT is also different to a regular NFT in that it is designed to fund positive social or environmental impact, acting as a digital asset for impact investing.
Companies such as Project Ark, Coral Tribe NFTs, MetaTrees, PhenomXHealth, and Woodies are working on the same mission of having a social and environmental impact through NFTs.
The impact of Impact NFTs
While there are still questions being raised on the actual impact of green NFTs on the environment, experts are largely optimistic about the future of these sustainable digital assets.
“While the crypto industry reduces its carbon footprint overall going forward, Impact NFTs’ role as a catalyst will become even more prominent in the days to come,” says Arijit Mukherjee, founder of NFT marketplace Yunometa.
Mukherjee believes that Impact NFTs will create awareness and understanding of new technologies such as lazy minting and NFT bridging to a larger subset of the audience over time.
While lazy minting works by not minting the NFT until it is first purchased, NFT bridging works on making the digital assets inter-operable between different blockchains for increased efficiency as well as to move from environmentally harmful blockchains to ones fighting climate change.
“Impact NFTs can help mitigate environmental pollution and it could even push adoption of NFTs when users are incentivised for using such NFTs. In this way, not only can they improve the future environmental sustainability standpoint, they can also drive penetration deeper,” says Mohit Kumar, founder of BitcoinWorld.co.in.
While some believe that impact NFTs can help fight climate change, others are still sceptical if it is even possible for digital assets to do so.
Sharat Chandra, Vice President, research and strategy at Earth ID, believes that Layer 2 solutions such as Polygon, which account for a majority of NFT and NFT-based gaming projects, can go a long way in mitigating the risks of climate change without jeopardising innovation at scale.
Rica Amaral, head of marketing and creative strategy at Project Ark, a social impact NFT platform, said that NFTs can help fight climate change by changing the incentive system.
“The decentralisation, transparency and ownership provided by web3 can create new ways for people to see money value in preserving and regenerating the environment, at the same time organisations and projects can diversify their support channels and be accountable for the impact they are bringing,” he said.
How far are we from sustainable NFTs?
While a majority know about NFTs, not many in the space are familiar with Impact NFTs. Amaral believes that there are a lot of projects in the space that many have not heard of given that they are not “very high-tech”.
He believes that the mass adoption of Impact NFTs will take some two to three years considering that people still have a lot of doubts or questions about NFTs.
Mukherjee, on the other hand, says that the shift towards impact and environmentally friendly NFTs is already underway, noting that the world’s highest-selling NFT creator, Beeple, has publicly pledged to make its upcoming NFTs sustainable.
Can both types of NFTs coexist?
On the whole, experts believe that both types of NFTs will continue to co-exist in the future.
“NFTs have a much larger canvas. Just as fossil fuel, as well as EV cars, are currently sold, both types of NFTs will co-exist for the foreseeable future,” says Mukherjee.
Chandra believes that the future of tokenisation will have an “equal mix” of all types of NFTs, including Impact NFTs.
Kumar also believes that both types of NFTs will coexist as both have different purposes.
Malviya concurs: “Yes, definitely. the ether 2.0 merge, ether POW to POS proof of staking, as I said is one of the examples.”