After years of delay, Ethereum is set to migrate to a proof-of-stake consensus mechanism this month, reducing the energy consumption needed to run the blockchain.
This will have a big impact on NFTs, which are primarily traded on Ethereum and get somewhat singled out for their perceived environmental impact. This reduced environmental impact may help heal the reputation of Ethereum-based NFTs among gamers, content creators, environmentalists and others outside the crypto space — and could spur a new era of NFT adoption.
“Ethereum's electricity demand, [currently] the size of a developed country like Portugal, could mostly vanish overnight,” says Alex de Vries of Digiconomist, a platform tracking Ethereum and Bitcoin energy consumption and carbon emissions. “Given that we're in the middle of both an energy crisis and a climate emergency, this would be a massive step to making Ethereum more sustainable.”
Proof of stake replaces the intensive energy needed for miners to solve cryptographic puzzles by having those running the network stake large amounts of cryptocurrency instead. Ethereum will only consume energy from the validators (who replace the miners) running their computers — without any big sets of mining machines — and this will reduce Ethereum’s energy consumption by 99.5%.
Ethereum isn’t the only blockchain to support NFTs, but it contains the largest volume of NFTs by far. Ethereum comprises more than 80% of all NFTs, whereas the proof-of-stake chain Solana held up to 12% last year, according to The Block’s Data Dashboard.
Removing one of the biggest NFT criticisms
Some of the biggest criticisms against NFT adoption have pointed to Ethereum’s environmental impact and these critiques have even led to some projects being scrapped.
In December 2021, the Ukrainian indie game developer GSC Game World pulling a forthcoming game that was slated to have NFT gaming assets. Even NFT projects that weren’t based on Ethereum, like a Polygon-based project from the UK branch of the World Wildlife Fund, was pulled in part because people didn’t like its association with Ethereum.
Ethereum’s merge can now usher in more people into NFTs, especially those that were hesitant to enter it because of Ethereum’s environmental impact, said Damien Schuster, co-founder of the carbon offsetting platform Offsetra.
“I think there'll be a lot of artists and companies that were afraid to use Ethereum because of that [environmental] narrative that are now going to come into the space,” he said. “That reduces pressure or pushback they might get from communities or investors.”
But while NFTs are more efficient in terms of transaction speed and environmental impact, they may have to atone for their past carbon emissions, said Schuster. Ethereum emissions increased amid the NFT profile-picture mania in 2021, peaking at an estimated 8.1 megatons of emitted carbon a year.
“There are already people who have offset a lot of their own personal emissions. We work with ArtBlocks, a big NFT company, they've offset all their emissions through us. They're still thinking about ways to help other projects” offset their prior emissions, Schuster said.
How much energy does Ethereum currently use?
Since inception, Ethereum has been using a proof-of-work system that burns large amounts of energy to prevent cheating on the decentralized ledger. While the energy use is tied to running the blockchain and not directly linked to making transactions, many critics argue that they are effectively linked (as the whole point of keeping the blockchain running is to process transactions).
As a result, we can get a rough picture of the energy cost of using the Ethereum blockchain on its current system by taking the overall energy cost of the blockchain and dividing it by the number of transactions on the chain. It’s worth noting that this isn’t a perfect analysis because it leaves out transactions made on layers above Ethereum, like Arbitrum, Optimism, zkSync and StarkNet and may struggle to account for the amount of renewable energy used by miners.
The number of transactions over the last year on Ethereum was 428 million, according to data from Messari, while Ethereum uses about 112 terrawatt hours (TWh) of energy per year. Thus, the average Ethereum transaction consumes 261.7 kilowatt hours (KWh) of energy. This equates to 0.113 metric tons of carbon dioxide emitted or driving a gas-powered car for 281 miles, according to the EPA.
Again, this isn't a perfect representation but it does provide some picture of the scale of its environmental impact — which will soon be a thing of the past.
© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.