Is There Such a Thing as an Eco-Friendly NFT?

It all depends on which blockchain you use.

The market for non-fungible tokens (NFTs) took off in 2021, becoming a $40 billion industry. However, environmentalists are increasingly concerned about the ecological damage of this booming market.

Recently, the World Wildlife Fund (WWF) withdrew its NFT fundraising project, following criticism about the high levels of energy consumption involved in minting and trading the tokens.

What happened to the WWF's NFTs

The U.K. branch of the WWF launched 13 NFTs of endangered species, including a giant panda, a Galapagos penguin, a Bornean elephant, and others. Each was depicted encased in a glass cage, and the idea had been to raise money for conservation efforts. Days later, it shelved the initiative.

The reason? In spite of the WWF's efforts to minimize energy consumption, campaigners insisted its NFTs would still guzzle energy. The WWF used the Polygon (MATIC) network to mint its NFTs, believing it had found an eco-friendly way to enter the NFT world. But critics were quick to point out their NFTs were not as eco-friendly as they thought.

Polygon is a layer 2 solution, meaning it sits on top of the Ethereum (ETH) blockchain to improve performance. Ethereum is the most popular blockchain for NFT projects. But until Ethereum upgrades to a more sustainable system, its network will consume more energy each year than a medium-sized country.

Polygon reduces Ethereum's transaction times, fees, and -- to some degree -- environmental costs. However, Digiconomist's Alex de Vries -- a vocal critic of crypto's high energy consumption -- pointed out that each Polygon transaction still consumed around 2,100 times more energy than the WWF had calculated.

Polygon can improve Ethereum's performance in a number of ways, but when it comes to reducing its environmental impact, many believe it isn't enough.

Can NFTs be eco-friendly?

There are several estimates on how much damage NFTs do to the environment, but it's difficult to know for sure. The issue is that creating each NFT involves a number of transactions on the blockchain, and each individual transaction consumes thousands of times more energy than, say, watching an hour of Netflix. In fact, one study estimated that the carbon footprint of a single NFT is equivalent to an EU resident's monthly power consumption.

What's worse is that thousands of NFTs are produced each day. It's much more than a couple of headline-grabbing pieces of art that go for millions of dollars. NFTs are ownership certificates for all kinds of digital items, including music, videos, in-game items, and sports collectibles. They are the building blocks for various burgeoning segments of the crypto industry, particularly metaverses and blockchain gaming.

Right now the majority of NFTs are minted on the Ethereum blockchain. Using layer 2 solutions like Polygon can somewhat reduce the environmental impact. But the only way for NFTs to be much more eco-friendly is to use other blockchains, or wait until Ethereum completes its upgrade.

The good news is that several blockchains, such as Solana (SOL) and Tezos (XTZ), consume a fraction of Ethereum's energy and are starting to be used to mint NFTs. Popular NFT marketplaces such as Rarible are already integrating Solana and Tezos. According to Solana, a single transaction on its network consumes a little more energy than a Google search.

To be an environmentally-conscious NFT buyer, it makes sense to understand the differences between the blockchains so you can look for more sustainable networks. By using NFT marketplaces that support those networks, you can play a part in pushing for industry-wide change.

Bottom line

If the NFT industry moved to other blockchains, NFTs could indeed be eco-friendly. Unfortunately, Ethereum still dominates the NFT market, and it won't complete its move to a more sustainable model until at least 2023. In the meantime, it will take a concerted effort from all involved to reduce the ecological footprint of this evolving industry.