NFTs should avoid PoW blockchain to reduce carbon footprint, warns Linux Foundation report

June 22, 2022

By Tsering Namgyal and Joe Pan

Non-fungible tokens (NFTs) are a class of assets such as digital art and digital collectibles, metaverse gaming and beyond have become extremely popular. In 2021, the value of transactions for digital collectibles and other forms of NFTs hit $44.2 billion.

Notwithstanding their massive popularity, they have been met with backlash for using too much energy through energy-intensive Proof-of-Work consensus mechanisms, says a recent report titled “The Carbon Footprint of NFTs: Not All Blockchains Are Created Equal” issued by the Linux Foundation.

“NFTs are villainized as environmental travesties, fuelled by nightmarish proportions of energy that are destroying the planet,” said the report, which cited Gartner’s technology cycle to say that NFTs are at the “peak of inflated expectations” now.

Future Roadmap

The report lays out a future roadmap for how NFTs, called “unique inventions in human history,” can be launched in more sustainable ways.

Produced in partnership with Palm NFT Studio and the Hyperledger Foundation, this report lays out key climate-related barriers to NFTs and suggests some strategies for embracing and building on the exciting innovations that NFTs enable.

“Adopting these strategies may unlock new opportunities for global collaborations and partnerships for impact through responsible and potentially beneficial approaches to climate solutions. We hope it will help organizations consider what matters beyond the hype and undertake innovative initiatives in a climate-friendly way,” the report noted.

First of all, the report suggests that the NFTs should avoid proof-of-work blockchains, look at the process end to end, pick a lightweight blockchain, seek innovative alternatives and offset (with verifications), what is left and, finally, cement commitments.

Avoid PoW blockchains

The single biggest and easiest step is to steer clear of PoW blockchains, which basically means avoiding the Ethereum mainnet (still accounting for the bulk 80%) of NFT market share by market capitalization.

“This simple step can reduce an NFT’s carbon footprint by an order of magnitude,” the report said. “Until Ethereum PoS is up and running with proof of stake, it’s difficult to recommend using this NFT carbon behemoth.”

It says that for those who already own an NFT collection on Ethereum, then simply leaving it at rest may not be the best course of action.

“Moving to an Ethereum based NFT collection to another blockchain will consume even more power, and so it’s best to wait until the proof of stake arrives. But if a transaction is unavoidable, then moving it off the mainnet may be the best available approach, along with offsets to make the transaction carbon neutral,” it said.

“In fact, even if an Ethereum NFT is left at rest, the purchase of offsets is worth considering to offset the original process of minting and purchasing it, bringing an NFT into a carbon-neutral state,” it said.

Move to Proof-of-Stake

Moving to alternative consensus mechanisms would help reduce blockchain’s carbon footprint, protect against coordinated mining power, and overcome blockchain scaling challenges.

Proof of Stake mechanism systems already exists through companies like Tezos and Beacon Chain. Ethereum PoS, which is promising in improvements in energy consumption, is not yet available. In the meantime, they could opt for such strategies as Layer 2 solutions, a series of lightweight transactions grafted to an existing blockchain, and efficient public blockchain alternatives such as Cardano (proof of stake) and Solana (proof of history) and sidechains (some of the most energy-efficient blockchain solutions are available through sidechains and private blockchains.)

Stakeholder commitments are key. “While technology choices are important, change can’t happen without bringing stakeholders onboard. In many cases, that starts with a commitment by ecosystem stakeholders. This engagement, right from the start, was key to getting participants onboard and committed to the process.”

The stakeholder engagement from the beginning helps pave the way for a project and reduces the risk of potential knee-jerk negative responses via social media.

“For proponents of NFTs, this is just the beginning. They represent an opportunity for innovation across a number of different industries. However, not all NFTs are equal”

Linux Foundation Research, in collaboration with Hyperledger Foundation and Palm NFT Studio, has conducted a new research project to explore the environmental impact of NFTs, including those using Hyperledger Besu, investigating how and why NFTs can have varying carbon footprints depending on underlying technology stacks.

The study uses qualitative methodologies to capture insights from carbon market experts, blockchain innovators, and open source community leaders. It describes the process by which innovators can choose sustainability by design. Finally, this research draws upon reviewed papers that have calculated and compared levels of energy use and impact.

The report is published in collaboration with a team of experts in climate change including Katherine Foster of Open Earth Foundation and advisor to ImpactNFT Alliance. “This report provides a robust and balanced analysis of the challenges and opportunities of NFTs and the blockchain landscape that underpins a rapidly evolving global impact innovation ecosystem. It offers concrete recommendations – for new and incumbent actors alike – to navigate the path toward sustainability,” Foster noted.

Carbon-friendly NFTs are possible

The original question driving the report was, “Are carbon-friendly NFTs possible”?

“The answer, the report found, is a definitive yes, if the entities issuing or using NFTs are prepared to dig into the implementation details and make the right series of technology and blockchain choices,” according to the report.

The vast energy requirements of the first generation of Ethereum NFTs are no longer a limiting factor. Many eco-friendly options already exist and, in this rapidly evolving landscape, the future will only get better as some of the worst offenders move to proof of stake, not to mention the growing number of other emerging alternatives.

“NFTs can offer exciting climate-friendly options for a wide variety of projects. NFTs and smart contracts may also unlock valuable new strategies and options for tackling climate change itself. Innovators are already exploring the securitization of carbon, the engagement and mobilization of citizens, and even endowing nature itself with rights and protections mediated by smart contracts. The choices are up to you,” it said.

Image: Wikimedia Commons

About the authors

Joe Pan is a contributing editor at Blockchain Asset Review.

Tsering Namgyal is the chief content officer at Blockchain Asset Review.

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