Cover photo source: Akos Stiller—Bloomberg/Getty Images.
Written by Katie Winter
What Are NFTs?
Nonfungible tokens, abbreviated NFTs, became a widely known sensation when the artwork “EVERYDAYS: THE FIRST 5000 DAYS” (shown below) by artist Mike Winklemann, known as Beeple, sold at Christie’s for $69.3 million USD on March 11, 2021.
Figure 1: “EVERYDAYS: THE FIRST 5000 DAYS” by Beeple. Source: MakersPlace.
NFTs are unique, identifiable digital assets, differentiated from other digital files by authenticity. For example, NFTs are essentially a digital certificate of authenticity that represent one’s ownership of the asset on that blockchain. Because these tokens are stored on the blockchain, they are publicly verifiable and traceable, granting an element of prestige to the buyer. While anyone can still view and download images of Beeple’s artwork, only the buyer possesses the NFT, holding the value and authentic ownership of the asset. Thus, NFTs being non-fungible means that they cannot be readily exchanged for another NFT, granting the additional element of scarcity. As an example, while two $1 bills could be easily swapped, the same cannot be said about two NFTs. NFTs’ non-fungible characteristic is visually depicted in the diagram below.
Figure 2: Diagram of fungibility and tangibility. Source: BlockChainArtExchange.
How Do NFTs Work?
NFTs serve as a public ledger, a fixed record of data “blocks,” representing a variety of transactions, such as a purchase of bitcoin or transfer of NFT art. Blocks are added to chain through crypto mining, a process of computers solving cryptographic equations through high-powered computers. The New York Times further breaks down the mining process and explains blocks in the video below.
Figure 3: A video explaining blockchain technology. Source: The New York Times’ YouTube Channel.
According to NASDAQ, most NFTs reside on the Ethereum cryptocurrency blockchain. The NFT world utilizes Ethereum because the Ethereum blockchain allows for the building of smart contracts, also called decentralized applications, some of which are NFT marketplaces. Ethereum operates on a proof-of-work system, the same as bitcoin, where coin mining relies on computers solving complex “puzzles,” and the only way to increase solving theses “puzzles” is through more computational power.
How do NFTs affect the environment?
Because Ethereum utilizes the proof-of-work method, computers must rapidly work to solve cryptographic puzzles, generating numbers in a race of trial and error. According to the New York Times’ reporting on blockchain mining, miners in mid-April of 2021 made over 170 quintillion attempts per second to produce new blocks. Only the miner who arrives at the correct answer will get their asset added to the blockchain and receive currency back. While this system is designed to be transparent and competitive, the process uses significantly large amounts of energy. While blockchain energy consumption varies between platforms, Ethereum currently consumes more electricity and produces a larger carbon footprint than some countries. The diagram below breaks this down.
Figure 4: An illustration showing both the annualized total and single transaction electrical energy consumption and carbon footprint of the Ethereum network. Source: Digiconomist.
Whether or not NFTs increase emissions themselves is still very much debated. The Verge argues that, without NFTS, miners would still mine Ethereum and pollute. NFT marketplace SuperRare further argues that Ethereum mining is similar to a train: even if everyone stops buying NFTs—”buying their seats” on the train—the train will still be running and using the same energy. However, Joseph Pallant, founder of the nonprofit Blockchain for Climate Foundation, compares trying to calculate the environmental effects of buying and selling NFTs to trying to calculate one’s share of emissions from a commercial plane flight, meaning that one single person is not responsible for the overall emissions, yet the overall demand for the industry does cause more emissions.
Will NFTs’ environmental impact change?
Recently, more artists, such as Joanie Lemercier, are calling for a larger movement towards sustainable NFTs. TIME argues that while crypto mining energy could come from renewable resources, fossil fuel conversion produces larger profits. Many users in the crypto-art community argue that the technology needs to switch to the proof-of-stake blockchain process from the current proof-of-work blockchain process. While proof-of-work now relies on heavy computation energy from computers solving puzzles, proof-of-stake would not use these mathematical puzzles but, according to Be In Crypto, instead rely on a “deterministic probability influenced by the number of coins staked at a specific moment.” These proof-of-work and proof-of-stake concepts are discussed more in depth in the following video by Blockgeeks.
Figure 5: A video explaining proof-of-work vs. proof-of-stake. Source: Blockgeeks YouTube Channel.
These proof-of-work and proof-of-stake concepts are additionally simplified in the following visual.
Figure 6: Infographic highlighting proof-of-work vs. proof-of-stake processes. Source: Blockgeeks.
While Ethereum developers promised to launch this new framework by 2022, critics argue that the new system would take away the decentralized nature of proof-of-work and also give privilege to miners with more coins. Additionally, Alex de Vries, financial economist and founder of Digiconomist, stated in a recent TIME article that, because of the costs miners have poured into their setups and this decentralized nature, “It’s pretty much guaranteed that miners will continue to run Ethereum in its current form.”
What place will NFTs continue to have in the arts field?
While NFTs took the arts market by storm in the beginning of 2021, with the environmental impact of blockchain technology coming to light, more artists and groups have not only been criticized but have also begun calling out the technology and not participating. Others are calling on more long-term changes, such as renewable resourcing for crypto-mining. NowThis Earth recently focused on this push for renewable energy, shown in the video below.
Figure 7: A video highlighting the push for renewable energy sourcing for NFTs. Source: NowThis Earth’s Youtube Channel.
Similar to NowThis Earth, more individuals such as columnist and technology lawyer Tiffany Li are calling for legislative action to asses this environmental impact. In fact, Li further emphasizes in her MSNBC article, “The crypto fad might not burn out—but our planet could.”
While long-term concerns mainly entail environment impact, artists are becoming more concerned with the safety of NFTs as well. Various platforms like Bolster Blog and the Verge have urged artists to be cautious of increasing scams regarding NFT theft and artist impersonation. Artists like Derek Laufman have had their work minted as NFTs and sold without their permission. Artist Liadoodles emphasizes, “We need more protection regarding copyright issues and property. We’ve had these issues for years and the NFT is just the cherry on top.” Thus, NFTs, while currently booming, have yet to reach their final form. This technology, while still relatively new, has many downfalls to still overcome to prove its place as a long-term technology in the art world.
Arts organizations, since joining the NFT trend, have faced backlash from artists. In fact, ArtStation recently announced their jump into buying and selling NFTs. In response, thousands of artists took to Twitter, slamming the decision and threatening to delete their accounts. Museums have similarly been called out by the public and activists for their acceptance of oil company sponsorships. NFTs present a similar controversy to arts organizations, especially ones not only concerned about their role in climate change but with their overall reputation in the public eye. Some smaller NFT platforms, such as Hic Et Nunc, have moved to blockchains such as Tezos, claiming to become the “first-ever environment-friendly marketplace for digital raribles.” Other platforms have promised carbon offsets, yet critics still argue these moves are not enough. Regardless, both large arts organizations, like ArtStation, and smaller platforms, like Hic Et Nunc, must be aware of this public concern and growing reputation of NFTs.
Effects on Individual Artists
While NFTs have been controversial, it is important to note the benefit to individual artists. Smaller artists with NFTs have not only been able to increase their exposure and recognition but also receive money for digital artworks that before did not have such a large market. In fact, artist Vakseen argues that NFTs specifically help Black artists get the financial recognition they deserve. New NFT art clubs, such as Black NFT Art have made over $700,000 working together selling NFTs. Addressing the controversial element of NFTs, digital designer and artist Gareth Stangroom stated to the New York Times, “Why is it when the little guys get a foothold, everyone’s on their case about the ethics of it—instead of criticizing the big players that have been abusing our planet for decades?”
Ultimately, both individual artists and arts organizations must engage with NFTs within their own ethical comfort level. Looking at the long-term viability of NFTs, software startup 2MuchCoffee emphasizes, “we’ve had non-fungible tokens used for everything from selling skins for online games to tracing food in supply chains…What is different this time is how much mainstream it got—and each evolution adds a layer of accessibility. In this light, NFTs are revolutionary.” While NFTs have burst into the mainstream in 2021, more evolutionary changes will need to occur for this technology to stay mainstream in the long run.
+ Resources
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