My upcoming NFTart drop with Trese artist Kajo Baldisimo has drummed up both excitement and ire from the online communities at large. Trese author Budjette Tan reached out the other day asking my opinion on one of the biggest criticisms about NFTart — its impact on the environment — and I thought this would be a good time to explain how blockchains and particularly, Ethereum, actually work in this regard.
Let’s jump right into the heart of it first: the NFTart industry is largely built on top of the Ethereum blockchain. Ethereum and all other proof-of-work blockchains use a lot of electricity. The critics of NFTart’s carbon footprint (its impact on the environment) are therefore really criticizing Ethereum itself, and 5 years ago, they would’ve been aiming these same criticisms at Bitcoin. (They still do. The Digiconomist portal has been attempting to track Bitcoin’s carbon footprint since before NFTs existed.) The environmental impact research for Ethereum is not as robust, but because it’s also a PoW blockchain like Bitcoin, we can make some reasonable assumptions about its impact as well. Or can we? Well, sort of. Because we care about accuracy when looking at data, we need to mention upfront that all the research in this area is based on estimates and extrapolations. Why is that? Because you can’t calculate carbon footprints accurately if you don’t know how the electricity in question is being generated.
The crypto mining industry is notoriously secretive about how it sources its power, and that’s why the confidence level on carbon footprint analysis isn’t as high as it should be. One of the better research pieces on this topic is from artist Kyle McDonald, and I like one of his conclusions: If these numbers are right, Ethereum is using […] 23 terawatt hours per year. This could be made to sound large, by comparing it to an entire country like Ecuador […] or it could be made to sound small, because […] people in the USA use three times as much electricity each year just watching television. What’s the most appropriate comparison to make? There’s nothing quite like this “world computer slash cryptocurrency” in our everyday life.
So apart from saying that Ethereum uses a lot of electricity, we can all probably agree on one other fundamental fact: there’s nothing else quite like Ethereum in terms of its impact on society. We’ve never had a decentralized platform that powers so many new business concepts, and although there are several contenders now for Ethereum’s throne, we can say objectively that most of the recent innovations happened there first. Crazy new concepts like decentralized lending protocols, automated market-makers, NFTart, play-to-earn gaming … all of these were made possible by programming smart contracts on Ethereum. In case I need to spell it out more clearly: we need to accept that breakthroughs in science and technology require a much larger energy expenditure. How much energy do you think it takes to launch a satellite into the upper atmosphere, for instance? And yet very few people are arguing that having a global Internet satellite service like Starlink would be a net-negative for humanity.
As I was doing research for today’s newsletter, I stumbled across an interesting analogy, which I will paraphrase here. The Ethereum blockchain is like a train. That train runs 24/7/365, never stopping, and it's always full. It's so full in fact that the passengers are offering to pay higher fees in order to make sure they are allowed on board. Each passenger on the train is an Ethereum transaction. As we know, Ethereum transactions can literally be anything: people could be transferring funds to each other, tokens could be either issued or burned, lending contracts could be executed, identity proofs could be shared, and yes, occasionally it could be someone minting NFTart. NiftyGateway cofounder Duncan Cock Foster explains “I think it is important to understand that the amount of energy [used by Ethereum] doesn’t actually change based on who uses it or who doesn’t use it.” Trying to establish a direct link between someone minting an NFT and an increase in greenhouse gases is therefore a tenuous argument that ignores the fact that NFTart is just another passenger on a massively crowded train.
All that being said, let’s go back to the initial statement: Ethereum and all other proof-of-work blockchains use a lot of electricity. That electricity consumption is part of the way it’s designed; the Nakamoto consensus mechanism doesn’t work without huge amounts of power. Bitcoin will never move away from PoW, but Ethereum will, and it’s scheduled to happen this year. Estimates indicate that the move to Eth2.0 will reduce its carbon footprint by over 99%. Why wasn’t this the big priority from the beginning though? Well, because real innovation takes time, and the truth is that we need to make compromises in the interim while more sustainable solutions are still being worked on. That’s what’s happening here, and it’s incorrect to think that just because blockchains have a big carbon footprint today, that will be the case forever. (At least for Ethereum, it won’t even be the case a year from now.)