Introduction
Technology has made significant strides in development and innovation in the past few decades. However, its rapid development has had a profound impact on the environment of our planet.
From increased emissions to higher electricity usage, it is clear that technology significantly impacts the global climate and warming. The most up-to-date technologies making waves include blockchain, cryptocurrency, and non-fungible tokens.
In particular, NFTs gained popularity in recent times because of their capability to denote digital assets like music, artwork, and even videos. Many see NFTs as technologies that will revolutionize the making and sharing of digital content. What impact will NFTs impact the planet? In this article, we will look at the environmental impact of NFTs and whether we can say that they are sustainable or not.
NFTs Explained
These tokens, or non-fungible ones, are exclusive and not interchangeable with other assets. They represent ownership of digital goods like videos, artwork, music games, collectables, and other objects. It is possible to trade and store NFTs through blockchain networks, making them secure and indestructible. They can also be used to develop a new NFT market for digital assets, allowing creators and artists to earn money for their work efficiently.
NFT Cryptos are rapidly becoming the latest trend in the world of the cryptocurrency market. Many investors are investing in them as a means to increase their wealth. They provide a unique method of trading and owning digital assets. They will likely increase as more individuals become aware of their benefits. If you plan to invest in these exclusive digital tokens, study and be aware of the risks associated with investing before you move.
How Are NFTs Affecting The Environment?
If you wish to make, sell or purchase an NFT, The blockchain network needs the energy to verify and include the complex transaction in an existing block. As trading in digital assets is also growing in popularity, networks are consuming more energy to facilitate these transactions. Some have even claimed that NFTs may harm the environment through their energy requirements.
You can figure out how much energy NFTs need by using the consensus mechanism they use for their Blockchain network. Most blockchains employ a Proof of Work (PoW) consensus mechanism that requires miners to work through complex mathematical problems to create blocks and verify transactions. When we create trade, purchase, or acquire more tokens that are not fungible, the demand for energy rises.
Alongside the energy these tokens consume, they are also kept on networks based around Ethereum. These networks have to pay gas for transactions. This added to the environmental impacts of NFTs because miners utilized PoW as their PoW consensus for mining Ether and consumed more energy.
It's critical to realize that other types of blockchain transactions may have more significant environmental implications than non-fungible tokens. Every transaction on a blockchain-based PoW adds to the power consumption by the system. This is one reason why many experts advocate for an increase in the use of energy-efficient consensus techniques shortly. Non-fungible tokens are an excellent way to help to create a more sustainable blockchain ecosystem if we adopt more energy-efficient consensus methods.
Because the trend of crypto art is relatively new, the information available yet has been analyzed by experts from outside. However, there are probably many greenhouse gasses linked to NFTs. They're traded on marketplaces such as Nifty Gateway and SuperRare, which use an online cryptocurrency called Ethereum. Ethereum, as well as other major cryptocurrencies, is based on a system known as "proof of works" that is highly energy-intensive. There's a charge for making a payment on Ethereum -in a way, and ironically this fee is known as "gas."
Proof of Work is a security mechanism for crypto exchange such as Ethereum and bitcoin, as no third party like a bank supervises transactions. The system requires users to solve challenging puzzles with powerful machines that consume energy to ensure that financial records are secure. By solving the puzzles, users, also known as "miners" add a new "block" of verified transactions to a decentralized ledger known as the blockchain. Miners are then rewarded with the new currency or transaction fees in NFT.
The process is highly efficient in energy usage by design. Using vast quantities of electricity and possibly paying for it significantly will make it more profitable for someone else to mess in the database. In the end, Ethereum can use as much power as the entire nation of Libya.
Energy Use In Blockchain Networks And NFTs
Using energy by blockchain networks and tokens that are not fungible could be a contentious issue. Blockchain is the engine that powers these tokens, and in general, the blockchain and NFTs have been accused of using the most energy. However, this is just part of the issue since NFT transactions don't require any additional energy other than those already utilized to provide the blockchain network with power. They are contained within the same block. Therefore, every energy source used in mining every block is also applied to transactions using digital tokens.
So, tokens that are not fungible don't necessarily impose an additional burden on the environment by using more energy. However, the energy consumption of these tokens can differ based on the blockchain's consensus mechanism. However, the technology behind digital assets, like Ethereum or EOS, consumes enormous energy, which is something to consider. Furthermore, it would help if you rewarded miners for their efforts in validating transactions, by rewarding them.
Thankfully, Protocol Labs researchers have been examining the global impacts that NFTs and other blockchain networks have. Their study has revealed that NFTs don't significantly boost the energy consumption of different blockchain networks. NFTs may be more effective than conventional techniques for producing digital artwork and other valuables.
In addition, unique digital tokens remain an emerging technology, so a clear answer regarding their environmental impact needs to be answered. Nevertheless, it is essential to be aware of these tokens' energy usage and possible benefits. These advantages could include reducing waste generated by physical objects and facilitating a more accessible NFT market for artwork and other digital assets. As technology advances, the best thing to do is to be aware and work towards higher energy efficiency for the blockchain and other NFT networks.
The Merge: A Major Decrease In The Use Of Energy
The Merge event in Ethereum is a necessary procedure that promises significant modifications to the blockchain industry. This has led to a massive decrease in energy consumption for Ethereum, ranging from 95% to 99.95%. To comprehend how it produced such a significant reduction in energy consumption, it is essential to examine the technology behind it.
Ethereum relied on the Proof-of-Work (PoW) consensus technology at its core. This method is less efficient than other options like Proof-of-Stake (PoS), which needs fewer resources. Following The Merge, on September 15 2022, Ethereum moved to PoW and switched to PoS consensus, leading to an energy-efficient network. Ethereum also implemented several steps to increase scalability and lower gas costs. This reduces the amount needed to operate the network.
The Merge was a crucial moment in the history of blockchain technology and NFTs since it proved that blockchain technology could develop positively. As more developers realize the potential blockchain has, the impact on the environment will increase.
The NFT market is young, yet the sector has made huge progress in decreasing its environmental impact. Through constant improvement and innovation digital tokens will continue to progress toward becoming more eco-friendly. While the blockchain industry continues to grow and develop, non-fungible tokens will be an essential element of its growth.
It is clear that Ethereum is the foundation of the web3 network as measured by the amount of economic activity total as well as user growth and the engagement of developers. The Merge significantly revised the Ethereum consensus system, transforming the Ethereum network from Proof-of-Work (PoW) to Proof-of-Stake (PoS) agreement.
Under the Proof-of-Work (PoW) miners verify block transactions by solving cryptographically complex computation issues - using energy throughout the process (literally"proof-of-work"). The security of a PoW blockchain is measured by hash power, which is the amount of computation (and consequently energy) dedicated to the network's security. Because mining requires specific equipment, techniques, and expertise, the majority of hash power generated by Ethereum was previously managed by a few private mining pools.
Under the concept of Proof-of-Stake (PoS), However, instead of solving issues with cryptography, PoS consensus validators stake the ether in an intelligent contract on Ethereum. The staked ether acts as collateral, which could be destroyed if the validator is dishonest or unreliable. Since anyone is able to set up a validator in PoS provided, there are 32 Ethereum available to leverage, and control of the network is shared among the many participants than under PoW. Anyone smaller than 32 ETH can also earn from staking by participating in mining pools like Rocket Pool, Lido, or a central NFT exchange development.
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What Is The Reason For Going From Proof-Of-Work (Pow) To Proof-Of-Stake (Pos)
There are three main reasons Ethereum changed from a PoW system to a PoW system the PoS system:
- PoS result in a safer distributed network.
- PoS allows scalability through the sharding process.
- PoS has higher efficiency and consumes 99 percent less energy than PoW.
PoS Can Result In A Safer And More Decentralized Network
Due to the cost of mining, fewer participants can validate their work, and the vast majority of individuals are part of mining pools. Mining pools, therefore, create and are the primary source of blocks. This leads to a centralized few who control the entire network. According to the company that analyzes cryptocurrency, 5 Ethereum mining pools made up 65.4 percent of all ETH. The protocol of PoS Ethereum requires a minimum of 16,384 validators. This makes its security more decentralized and, in turn, more secure.
PoS Can Allow For Scalability Through The Sharding Process
The transition into PoS was the initial step towards enabling sharding, the process of dividing this network into "shard chains" that share the burden of Ethereum, which is supposed to reduce congestion on the network and boost transaction throughput. Instead of placing all transactions in one blockchain, the shard chains split operations across 64 chains. The first sharding will be scheduled in 2023 and could lead to massive leaps in the blockchain's capacity.
A brand new sharding concept known as Danksharding is growing in popularity within the Ethereum community. Danksharding brings significant improvements to the previous designs for sharding and is the first to introduce Building/Proposer Separation (PBS).
Once it's implemented, sharding can be anticipated to boost the transaction speed of Ethereum 100 to 150,000 transactions every second, which is higher throughput than the other central banks that issue credit cards.
PoS Has Higher Efficiency, Consuming 99 Percent Less Energy Than Pow
In PoS, it is unnecessary to expend enormous amounts of energy to perform proof-of-work calculations. This is why Ethereum's move to PoS has resulted in a 99.9 percent reduction in the energy required to protect the network.
What Has Happened Since The Merge?
The Merge introduces a variety of critical improvements to Ethereum including:
- Miners were replaced with validators.
- The time to block has been extended.
- New penalties increase the stakes of the staking.
- Validators have gained access to MEV through MEV-boost auctions.
- Block building is a new form of economic player.
- The block reward subvention was cut by around 90%.
- Fixed block times can affect MEV dynamics.
Miners Are Replaced With Validators
The transition to PoS substituted miners for validators. Instead of requiring large mining equipment to be able to function as a validator, all one requires is 32 Ethereum to stake and three distinct components of the software that include an execution client as well as a consensus client and the validator.
Validators suggest new blocks, provide attestations (votes) and watch for any offences that could be slashed (penalties).
Validators will remain in use until:
- It's a voluntary withdrawal.
- Its balance dips below 16 ETH.
- It is then slashed.
Use our Ethereum stake ROI calculator to calculate the average amount of return Validators are currently getting.
The Block Is Delayed Until The Finalization Of The Process
Presently, Beacon Chain blocks take 64-95 slots (~15 minutes) to complete, a substantial improvement over the less than five minutes required waiting for the 35 confirmations of a block, after which it was widely agreed that a transaction was likely to be secure and can be concluded under PoW. What is the reason why block finalization takes longer under PoS? To better understand this, we need to review how block finality is closely implemented following The Merge.
Under PoS, Blocks are created each time (12 seconds) even if the slots are empty. The network randomly chooses an individual validator as the initiator in each slot. If the selected person fails to submit an item during their allocated slot, it will not be able to block the slot, instead moving on to the following slot.
When a block is made and validated, the other validators on the network are notified of this block, check that it's valid, and then provide the attestation (vote) for the block to the network.
Each time there are 32 slots (6.4 minutes)--also called an epoch. Each validator on the network is able to submit an attestation (vote) to support the epoch. It requires two justified epochs (a "justified" is when most validators have agreed to the epoch) for these epochs and all the blocks within each one to be finalized. Once a block has been completed, reverting it requires at least 1/3 of all validators to burn their deposit which could cost more than three million ETH.
While this alternative route to block closure could take longer, it's significantly safer than the previously used "longest-chain" rule used in PoW blockchains. It is also less likely to cause hard forks or double-spend attacks.
New Penalties, Such As "Slashing," Can Add Stakes To The Stakes
In addition to submitting blocks and providing attestations, validators can also watch each other for suspicious behavior and "slash" others validators who fail to protect the integrity of the system. Slashable crimes are actions that are proven to be detrimental to the Ethereum network. This includes double-voting (e.g., proposing two blocks within the same time slot) or providing contradictory attestations (e.g., signing two different attestations within the same time).
Validators looking for slashable events are called "whistleblowers," called "slashers." If a whistleblower discovers an event that can be slashed, the whistleblower will send the event to the network to allow the following block creator to add the evidence to their block. The block proposer will be paid an incentive for cutting the fraudulent validator. However, the whistleblower will not be rewarded. This is because whistleblowing is meant to be an act of charity and is not designed to make money.
It is important to remember that slashing may not originate from malicious motives. Validators are also slashed because they must be more active and participate in the community. Additionally, a validator may be punished because of accidental actions, like not keeping slashing security up-to-date on failover servers or having duplicate keys. It is also possible that massive Ethereum client software malfunctions cause slashing, making the diversity of clients extremely important.
If a validator is cut and slashed, they experience an ongoing reduction in ETH. The amount lost will be different depending on the level of activity in the network. Validators that have been cut can be blocked from continuing to participate in the protocol and forcefully removed from the network for life.
Slashing is not to be confused with a penalty for inactivity resulting from money lost when an authenticator is unavailable or incapable of performing its duties of validation.
Block Building Is A New Form Of Economic Player
Public blockchain networks "batch" transactions into blocks. Blocks are confirmed (or verified) and added to the blockchain. Block building is the process that determines what transactions are part of the block and which ones are included in the order. The inclusion of transactions and order can be a significant factor in how value is transferred through the network and who can access it in the network.
Under PoW, the block-building process and mining (i.e., proposing and confirming the existence of a block) were performed by the same actor in the network. Since mining requires specific equipment, skills, and expertise, only a few members of the mining pool were accountable for most block building - which made the process opaque and centralized. This was changed fundamentally when it came to The Merge.
A person, the validator, still controls block building and proposing. However, the massive increase in numerous new validators could cause several participants to need to be equipped to construct efficient and profitable blocks like miners. Ultimately, The Merge NFT creates the conditions for a new category of economic actors in the network to emerge as Block Builders. Block builders are specialist companies that offer services in real-time for block construction services for validators. In the future, this distinction between proposers and block builders will be codified into the network under what's known as the Proposer/Builder Separation (PBS).
Block building's separation from proposing opens up entirely new economic actors with far-reaching implications and possibly wholly new, distinct, or more obscure power systems. Block building could have more impact than people think. For instance, the new dynamic created by block building might result in your web3 wallet or decentralized app requiring you to utilize it.
Block Reward Subsidy Is Cut By Around 90 Percent
As miners receive newly-minted ETH as the reward for successfully adding blocks to the blockchain in PoW; however, under PoS, the validators who submit new blocks also receive an incentive for block creation. But under PoS, the reward for block creation is cut by almost 90% because validators don't have to pay the expense of mining and hence receive less of a payment to the system.
According to The Ethereum Foundation, ETH issuing under PoS substantially reduces pressure on selling Ethereum. According to Ethereum.org, the stake reward and mining comparability are comparable to the following:
- (Pre-Merge) The staking reward is 1,600 ETH/day before the Merge.
- (Post-Merge) (Post-Merge) USD per day in ETH remain (Post-Merge), and the total number of new ETH issued by around 90 percent.
The impact is also known as the triple of having.
The decrease in block rewards and the burning of gas base fees could lead to ETH becoming a deflationary asset following Merge.
Fixed Block Times Can Affect How Certain Users Conduct Their Business
The most significant change that will come from The Merge is fixed block times. The prior PoW model utilized variable block times, meaning the blocks were confirmed at any time. Every millisecond could be considered valuable under this model miner, and MEV searchers couldn't know precisely when the next block would be confirmed.
Under PoS, the blocks are verified every 12 seconds like clockwork. That means that every millisecond is not equal to each other, as those closer to block confirmation are more valuable for particular trading strategies. As a result, the competitors are less likely to react. This could lead to surge effects, where transactions increase the second or two minutes before the block is confirmed.
There is a shorter time frame for the various automated systems to be competitive, resulting in competition for low-latency infrastructure to detect and react. This will likely reduce fuel costs, but more information will have to be gathered.
A significant amount of money is being invested in research and understanding how block times fixed will affect gas prices. Some believe we'll witness a new trend following the merger that will affect the gas networks and NFT market structure.
Do Energy-Efficient NFTs Exist?
Yes. Non-fungible coins can be highly efficient in terms of energy efficiency when purchased at the right place. They are digital items stored in a blockchain-based network and require energy to mint and transaction verification. These digital assets will require much less energy when you choose blockchains with better consensus mechanisms, such as Liquid Proof-of-Stake (LPoS) and Proof-of-History (PoH).
Solana, for instance, combines PoS and PoH consensus techniques. It is compatible with NFT marketplaces such as Rarible, Magic Eden, and Solanart. These are the best locations to buy unique digital tokens with minimal environmental impact. Tezos is a green alternative since it uses an LPoS consensus mechanism, which consumes about two million per cent less power than Ethereum prior to the Merge.
We have mentioned Ethereum many times throughout this piece since it is the most well-known blockchain, with numerous NFT, GameFi, and DeFi projects constructed on it. Using Ethereum to purchase digital tokens is also possible, as its energy consumption decreased significantly following The Merge. Algorand or Cardano are two alternatives. If you want to help NFT artists and contribute to a sustainable future, purchasing these items on these platforms is an excellent option.
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Conclusion
Utilizing advanced blockchain technologies, like Proof-of-Stake Non-fungible tokens, could be more efficient in energy use and long-lasting. We've talked about how NFT can affect the environment. Ethereum has dramatically reduced energy usage through its Merge event and other blockchains or Cryptocurrency exchange software that offer greener choices for NFT purchasing. If you're an investor or collector seeking to support artists and contribute to a more sustainable future, purchasing tokens on these marketplaces is an option to help in the present.
