Environmental Concerns Have Cast Doubt on NFTs—But That’s Changing

In Scotland this month, world leaders bickered about global efforts to reduce carbon emissions at the COP26 summit. Meanwhile in the oil-drilling capital of Alberta, Canada, a tech company is doing its own small part to help the world reach carbon neutrality: turning oil waste into environmentally-friendly energy that powers crypto mining. This self-sustainable system, developed by a company called CurrencyWorks, will ultimately help power the distribution of Zero Contact, a new movie starring Anthony Hopkins, which is set for release next month as an NFT, or non-fungible token, with zero carbon footprint.

At the Canadian plant, municipalities pay a fee to give away their waste. That organic material—in this case, solid waste—undergoes a process called pyrolysis, decomposing it at high temperatures under pressure. That generates electricity, which can go towards crypto mining; between municipal waste and oilfield waste, the plant can power up to 200 mining machines. With its giant oil tank and hefty metal pipes, the operation may not, at first glance, seem to have much in common with the shiny world of NFTs and Web3, the next generation of digital and virtual tools and platforms. But this industrial facility is playing an essential role in the global energy transition, with or without the guidance of government leaders and their pledges.

The Edmonton, Alberta-based plant is part of a burgeoning effort in the cryptocurrency community to address the environmental impact of “mining” coins, a process that has drawn global ire because it is so energy intensive. One Cambridge University study suggested global bitcoin mining consumes more electricity each year than the entire country of Argentina. During the early NFT boom in spring and summer 2021, when NFT sales of multi-million-dollar artworks and collectible products added up to a trading volume of billions of dollars, headlines were more likely to call into question the climate-unfriendly backbone of the decentralized trading ecosystem than the artistic or cultural value of the works themselves.

Read More: Binance, the Largest Cryptocurrency Exchange, Calls for Regulation on ‘Wild West’ Crypto Markets

For some, it can be hard to grasp how a digital transaction—an exchange of binary codes displayed in a series of blinking lights—can have such a deep impact on climate change. It helps to remember that every digital process consumes energy. The global banking industry, for instance, consumes about 263.72 Terawatt hours per year in energy, according to a NASDAQ research report. Bitcoin, the world’s most popular blockchain and cryptocurrency (and the most energy-hungry), consumes a bit less than half that. Creating blockchain blocks—mining—is labor-intensive, and therefore energy intensive, by design.

Eco-friendly innovation

Now, the crypto world is trying to change. Many platforms now advertise their eco-consciousness. Processes like those at the plant in Canada, using a CurrencyWorks protocol called Zer00, are gaining traction. Innovations in cryptocurrency information storage offer attractive alternatives. Some companies are even selective about the physical locations they choose to mine coins, seeking out places that use renewable sources or excess energy. (Currently, about 39% of bitcoin mining can be traced to renewable sources.)

But it is early days for crypto, and every month brings new efficiencies. Israeli engineers Eli Ben-Sasson and Uri Kolodny, co-founders of a company called StarkWare, are quick to stress the rapid change the industry is experiencing. They’re the Boomers in this space, not the young engineers and Gen Z artists who tend to be in the spotlight. The two come from theoretical and academic backgrounds. But they are one of a number of teams who have developed a way to reduce the carbon impact of Ethereum mining and transactions by packing more information into each block of the blockchain. (Brands planning to get into NFTs—like Marvel and Disney—are already signed up to make use of StarkWare’s technology in their NFT launches, as Ethereum is currently the leader in NFT trading volume. And they just closed a $50 million Series C funding round at a $2 billion valuation.) StarkWare’s approach reduces energy consumption by anywhere from 200 to 200,000 times other options, they say, but on a purely theoretical level, that number is limitless.

“If you think of each block of a blockchain as something that is very carbon-emitting, because of all the mining that goes on, there are fixed costs, which are really, really large,” explains Ben-Sasson. “Think of it like some airplane that spits out a lot of carbon. But if instead of 100 people on an airplane you could fit 600,000 on an airplane, then even though the airplane is still emitting the same amount of carbon—which is bad—in terms of the footprint per person, it’s actually pretty, pretty decent. And that’s exactly where we come in.”

Kolodny says the company’s technology can now fit “more than a million” NFTs in a single block. StarkWare has built a tool, called a ZK or “zero knowledge” rollup, that moves transactions offchain, thereby minimizing energy needs. It is an alternative to the fundamental “proof of work” engineering contract on which the blockchain is built. This is one of the central debates in the blockchain community today: whether or not new chains that are not “proof of work” as well as additional rollups like StarkWare’s can—or will—be acceptable alternatives to the fundamental “work” of bitcoin. While the biggest crypto platforms, Bitcoin and Ethereum, remain “proof of work,” other competitors—including Binance, Solana, Tezos and Flow—are the more energy-light “proof of stake” and therefore natively more efficient. StarkWare is one example of a company offering a way to make Ethereum transactions more efficient as-is; it is notable for its high profile clients.

A push from investors

Robbie Ferguson, CEO of Immutable X, a company that facilitates NFT transactions and considers itself 100% carbon neutral, has been using StarkWare’s tech as part of its platform. He sees the movement towards more ecologically-friendly choices in the crypto world as being inevitable—both from a business and a social perspective.

“I don’t think the crypto space cares too much,” he says. “I think the crypto space is on a mission of reducing intermediaries in finance and also empowering digital ownership. I think most of them consider that the paramount mission. But mainstream businesses, certainly a mainstream consumer, [care]. It’s also something we care about deeply.” When large brands and businesses increasingly ask for carbon neutrality to be built into their work, Ferguson says NFT platforms and blockchain operations like his have no choice but to consider ways to make that happen.

Read More: Teen Artists Are Making Millions on NFTs. How Are They Doing It?

To Cameron Chell, the CEO of CurrencyWorks, the company that has the Canadian plant, all the new solutions for cleaning up crypto have a place in the technology’s future; it’s one of the primary things that comes up in “every conversation,” he says of the environmental aspect of crypto and NFT creation. “If your project doesn’t have a greater good benefit, if it doesn’t speak to the community, and if it does have a significant carbon footprint, it’s a big X against it,” he says. He sees his own operation as becoming fully self-sufficient on its reclaimed energy in the near future. Others will have to find their own ways toward that goal. But as the market expands—over $330 million in NFT sales from April to October 2021 alone—it will force adoption, according to leaders like Chell and engineers like Kolodny and Ben-Sasson who are intently bullish on their prospects.

The highly visible growth in NFTs, in particular, has elevated this push; artists, brands and collectors alike have been vocal about their interest in environmentally-friendly processes. Fifteen-year-old Bronx-based NFT artist Theo, who goes by the artist name Huppings, explains his thinking: “The Ethereum blockchain in general isn’t great for the environment, but a quote by Scott Belsky I love is, ‘Let’s not cancel new gen tech based on its first generation of use.’” That’s a sentiment that Ben-Sasson, Kolodny and many crypto artists, leaders and investors share. “Although, yes, ETH is not good for the environment, the effects it has are nothing compared to large corporations like Amazon,” Huppings says. “Those companies are the biggest perpetrators of climate change.”

Ferguson is more pragmatic. “I don’t ever want environmental impact to get in the way of global adoption of digital ownership and energy,” he says. He’s confident the market will deliver.