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How a new generation of NFTs plans to cut its carbon footprint

April 25, 2022, 6:00 PM UTC

On April 19, 2022, the NFT world was taken one step further—into space. Axiom Space, a commercial space station, joined the ranks of organizations minting non-fungible tokens from space. And with a nod to the growing concerns over the environmental impact of NFTs, the company relied on carbon offsets to minimize its footprint.

As the NFT marketplace has exploded over the past few years, scrutiny of the crypto world’s environmental impact has only been growing. Christie’s auction house remains the highest seller of an NFT to an individual bidder: In March 2021, Christie’s sold its first ever purely digital piece of art, a collage of 5,000 images by artist Mike Winkelmann known as Beeple, for a price tag of $69 million. This sale helped make 2021 a record year for NFTs with total sales of $17.6 billion according to NFT Market Report.

But after initial explosive growth in 2020–2021, NFT sales have slowed both in terms of total value of sales and the number of NFTs sold. At the same time, the NFT market has rapidly expanded beyond art into games, collectibles, sports, and space missions—as more buyers and industry experts take a closer look at the environmental footprint of this new industry. 

Between 2019 and 2020, games and the metaverse contributed to 33% and 39% respectively. The collectibles market—such as memes, avatars, graphics, sports moments, and pixelated creatures—has also been growing, accounting for 38% of transactions since July 2020. Music NFTs are also bursting onto the scene, with DJ Justin Blau making $11.6 million off his blockchain-based album.

As the NFT market continues to grow and expand into alternative industries and the public’s awareness of crypto’s impact on the environment evolves, buyers and sellers are looking to environmentally friendly blockchains to trade on, with some even withdrawing NFT drops altogether.

In 2021, architect Chris Precht abandoned plans to sell NFTs due to the environmental impact of mining them. 

“This leaves such an ecological guilt for me that this time, I have to say no,” he told his fans in an Instagram post in March 2021.

NFT artist Memo Akten labeled the ecological cost of crypto art “unreasonable.”

“Given the urgency of the current climate crisis, we are already faced with the immense challenge of having to change our existing habits,” the artist asked in a detailed blog post back in 2020. “Is it really wise to adopt new systems and habits that are as ecologically devastating as this? To me it seems like lunacy.”

French artist Joanie Lemercier have been sounding the alarm on the environmental impact of NFTs since early 2021. ​

“The situation around the disastrous impact of the Ethereum blockchain has been very revealing in the digital art world: We’ve seen very individualistic behavior and narcissism from a few digital artists using Ethereum,” she said, noting the “emergence of ethical, ecological discourse within the community, building on greener blockchains for over a year now.”

A move toward greener NFTs

The sustainability of NFTs depends on the blockchain they are built upon, and so which blockchain is used decides the NFTs’ carbon footprint.

NFT developers—including William Entriken, the author of the NFT protocol for Ethereum—followed Lemercier’s suit, warning that cryptocurrencies had to tackle their carbon footprint as they were heading down a “destructive” path.

As the NFT marketplace has grown, a new generation of blockchains—and NFT creators—has emerged that aim to take their environmental footprint into account from the start.

That is the route the founders of Kalos Labs, the company that creates customized NFT platforms and metaverse experiences, took during its collaboration with Axiom Space. The NFTs were minted on Ethereum, and Kalos is purchasing carbon offsets to compensate. 

Tejpaul Bhatia, the chief revenue officer of Axiom Space, added that for the company’s other NFTs it will be using Polygon for its proof-of-stake model in order to reduce its carbon footprint.

Still, millions of trees would need to be planted to offset the carbon emissions of NFTs, according to recent research. NFT Club estimates 1.37 trees are required to offset each NFT sale.

New blockchains

One of the main challenges is that the bulk of NFTs are primarily traded in marketplaces that rely on Ethereum, which has a huge carbon footprint. The network’s share of NFTs was 95% at the start of 2021, although that has since dropped to 80% a year later. Its annual energy consumption is comparable to that of the Netherlands, while its annual average footprint is equivalent to Belarus’s. One individual transaction on Ethereum amounts to the power consumption of a U.S. household for almost nine days.

As the NFT market grows, sellers are increasingly favoring other blockchains, such as Solana and Avalanche, to trade on, as their proof-of-stake operating mechanism is far more environmentally friendly than Ethereum’s and Bitcoin’s proof-of-work system. 

Ethereum is already losing ground in NFTs to networks such as Solana, according to JPMorgan, whose analysts found the blockchain’s NFT volume share fell from 95% at the start of 2021 to around 80% at the start of this year. 

“It really is proof of stake that makes [blockchain] low carbon,” says Joseph Pallant, founder of Blockchain for Climate Foundation, a nonprofit working to put the Paris Agreement on the blockchain—or in layman’s terms, using blockchain technology to incentivize national carbon emissions reductions. “And I’m really hopeful that people will recognize that it’s Bitcoin—and for now, Ethereum—that have the high carbon footprint and not the other crypto. Most other blockchains have extremely low-carbon footprints; it's as simple as that.”

As NFTs grow increasingly popular, and expand beyond the art and fashion worlds, a blockchain’s carbon footprint becomes ever more significant, so much so that Ethereum has pledged to switch to proof of stake by the end of 2022. The move will reduce its environmental impact by 99%, according to Tim Beiko, the coordinator for Ethereum’s protocol developers.

Pallant cites Near blockchain as a prime example of how blockchains can be in line with environmental concerns. An independent assessment of the blockchain’s carbon footprint found it to be around 174 tons per year, making it 500,000 times more carbon efficient than Bitcoin.

New generation of sustainable NFTs

For many emerging NFT companies, transaction prices are the deciding factor in deciding which blockchain to use, not its environmental costs.

Mick Assaf launched Yoke Athletics in 2021. Yoke is a turnkey technology company that enables college athletes to monetize their name, image, and likeness: a triplet of assets that are known under the umbrella acronym NIL. Within 18 hours of launching, Assaf’s company had 10,000 athletes sign up.

“The growth has been explosive,” he explains, “and the technical ecosystem has struggled to keep pace at times.”

Yoke’s NFTs are minted on Polygon, a crypto platform that has billed itself as eco-friendly, basing its mechanism on the proof-of-stake model. Polygon claims its blockchains consume 0.00079 TWh of electricity annually, compared to the biggest proof-of-work blockchains, such as Ethereum, that consume up to 140 TWh of electricity. 

Assaf opted for Polygon not because of its environmentally friendly attributes, but because it is a layer 2 solution, meaning transactions are processed faster and cheaper. However, even a layer 2 blockchain like Polygon relies on a layer 1 blockchain like Ethereum, which still leaves a significant carbon footprint. 

Assaf is aware of the limitations with blockchain when it comes to the climate. 

“They’re very early in their life cycle,” he notes. “When technology changes, they’re not always optimizing for environmental impact. Over the next decade, I do believe blockchain technology will evolve and become much better for the planet.”

For the NFT creators looking to make their products carbon neutral, it’s simple, Pallant adds: Just choose a blockchain with a proof-of-stake mechanism. Or for those opting to use Ethereum, where the vast majority of valuable NFTs are hosted, use a layer 2 solution and offset the footprint using carbon.fyi—a free tool that calculates the footprint of an Ethereum address and suggests offset options.

Robbie Ferguson, CEO of Immutable X, a transaction facilitation company that claims to be 100% carbon neutral, told TIME that the move toward sustainable NFT solutions is inevitable, driven by consumer demand.

For believers like Pallant, there is a misconception around how environmentally unfriendly crypto and NFTs are. He says that sweeping and inaccurate claims are often made about the sustainability of blockchains, with much of the public tarring crypto with the Bitcoin and Ethereum brush—when a large number of other blockchains are transitioning to being carbon neutral.

“We see a flourishing of extremely low-carbon blockchains, successful on-chain climate enterprises, and earnest actions to clean up currently dirty blockchains,” he says. “People are extremely concerned about the carbon footprint issue, as they should be, but tarring all this innovation with a ‘crypto equals bad’ mindset is uninformed, and moreover, hinders real climate action."

With Ethereum switching to proof of stake in less than a year, NFTs could end up being the most sustainable kind of consumerism out there—as long as carbon capture efforts can keep up. But this transformation will not happen overnight.

“As long as proof of work still exists, the environmental impact is still high,” notes NFT trader Angeline Viray.

This story is part of The Path to Zero, a special series exploring how business can lead the fight against climate change.