image: bitcoinist.com

The digital photo collage by digital artist Mike Winkelmann, aka Beeple, was worth $69.3 million (about €65.8 million) to a buyer at a Christie's auction in March 2021. Even if other artists can only dream of it, it clearly shows that NFTs are trendy. The creative industry in particular is happy. Artists and creative people can finally protect their works. In contrast to fungible tokens, NFTs cannot be exchanged and are therefore safe from copying and destruction. In addition, creative people achieve a higher and thus fairer profit sharing on the sale of their works. Because with every sale, the transfer of assets is also recorded in the blockchain. This allows the creator to receive a percentage of the sale price on each subsequent sale of the NFT.

Good for artists, bad for the environment?

However, there is a catch: Anyone who buys an NFT needs a cryptocurrency, which in turn is based on a blockchain that is said to have a massive carbon footprint. Digiconomist already calculated in 2018 that the annual electricity consumption of Bitcoin is equivalent to the total annual consumption of Ireland. Another study is said to have found that the energy consumption of China's Bitcoin blockchain exceeds the annual greenhouse gas emissions of the Czech Republic and Qatar combined. There are also calculations for NFTs that do not suggest anything good for the environment. The best known is probably the study by the digital artist Memo Akten. Based on 18,000 NFTs, he found that the carbon footprint of a typical NFT corresponds to the monthly electricity consumption of an average EU citizen.

The enormous footprint is not due to just one, but many reasons - or rather, many transactions. From creation to offering to sale and transfer of ownership, there are numerous transactions associated with an NFT. These are dependent on electricity. The more transactions take place, the higher the power consumption. If these do not come from renewable energy sources, a lot of harmful CO2 enters the air:

CO2 consumption and transaction

is equivalent to

100 Kg CO2 to create a digital work of art

1-2 hour flight, e.g. B. from London to Frankfurt

200+ Kg CO2 for sale with a few bids

3 hour flight, e.g. B. from London to Rome

500+ Kg CO2 for multiple bids and multiple sales

Flight of more than five hours, e.g. B. New York to Los Angeles*

(https://memoakten.medium.com/the-unreasonable-ecological-cost-of-cryptoart-2221d3eb2053)

"The problem is more complicated"

Calculations like these are largely based on NFTs stored on the Ethereum blockchain. This has emerged as the standard marketplace for non-fungible tokens. To verify the legitimacy of transactions and store data, Ethereum uses a mechanism called “Proof of Work” (PoW). With this mechanism, the participants in the network, the miners, have to perform a specific task. The fastest is allowed to attach the corresponding block to the blockchain and is rewarded with the corresponding cryptocurrency, the coin. This PoW mechanism is complex and leads to the incredibly high energy consumption of the network and thus also of the NFTs. Since most, but not all, NFTs are based on Ethereum, not all are equally dangerous for the environment. “It depends on the blockchain they use and how many transactions are processed on it. The problem is more complicated than saying everything is terrible,” Susanne Köhler, a blockchain sustainability researcher at Aalborg University in Denmark, tells energiewirtschaft.io. The PoW blockchains are increasingly being operated with renewable energy sources. Already today, 39 percent comes from green sources such as wind or sun, according to a 2020 study by Cambridge University. Nevertheless, one thing is certain: "The environmental impact of proof-of-work blockchains is enormous," says Köhler. "Bitcoin mining alone is thought to consume almost as much electricity as all the data centers in the world right now."

Low-energy alternatives

The industry has long since developed solutions: the Proof-of-Stake mechanism (PoS), which is used by blockchains such as Tezos, Solana, Avalanche and Cardano, uses far less energy, for example. For example, Tezos has an estimated annual energy consumption of 0.00006 TWh, compared to 33.57 TWh for Ethereum. In contrast to PoW, the transactions are not validated by the miners, but by so-called validators. The more capital they have deposited (stake), the more likely they can attach a block. The concept places fewer demands on the hardware and uses less energy accordingly. Another possibility is the consensus-based Delegated-Proof-of-Stake (DPoS). In doing so, users vote for delegates to validate the next block in a blockchain. To do this, they pool all funds in a staking pool, which is then linked to whoever they vote for as a delegate. The Block.One engineers swear by this mechanism with their open source protocol EOS IO. This is an efficient and at the same time low-energy way of operating a blockchain: Not only can 3,996 transactions per second be carried out - compared to 15 per second on Bitcoin and Ethereum - according to calculations by Genereos and Digiconomist, this is 66,454 times more energy-efficient than Bitcoin and by 17,236 times more than Ethereum. In addition, together with ClimateCare, all emissions are offset using the offset process. EOS can therefore rightly call itself the "world's first blockchain with CO2-neutral servers". The NFT market leader Ethereum is not that far yet, but a switch to the PoS mechanism is scheduled to take place in June 2022. This shift to “Ethereum 2.0” could reduce the energy consumption of NFTs by 99 percent, experts say.

Those who don't want to wait until then have been able to create digital works on the more environmentally friendly Tezos blockchain on the NFT marketplace and production studio snark.art since 2018. The Berlin artist 3Dfraction recently used this option to show the drama of wars such as the Russian invasion of Ukraine in “Stop the War”. He is not the only one using NFTs to draw attention to social grievances or promote sustainable projects. The World Wildlife Fund for Nature (WWF) also made headlines in November 2021 when it released its own crypto art in the form of "Non-Fungible Animals (NFA)" in support of the protection of ten critically endangered animal species. However, the campaign was short-lived: the resentment of those who viewed NFTs as harmful to the environment was too great. Wrongly. Because the WWF-CryptoArt is based on the Polygon solution, which uses "sidechains" (layer 2) running parallel to Ethereum and consumes only 1 percent of the CO2 emissions of an Ethereum transaction. Also, Polygon runs on PoS from the start.

Factors: environmental friendliness, price and speed

The NFT solution of the Berlin startup license.rocks also relies on Polygon - for several reasons: "I've heard from artists that they want an ecologically sustainable solution," explains Daud Zulfacar, Managing Director and responsible for Product & Vision . "At a hackathon in 2019, we also looked at the ecological and social impact as well as the SDG goals and looked at which of the environmentally harmful aspects could be removed from the construct. We quickly came up with Polygon because there weren't that many offers at the time.” Environmental compatibility is only one of the factors in the decision, the other factors being price and speed. Because the creation of NFTs on Ethereum is in many cases too expensive: "In Germany, however, we are not willing to spend several hundred euros for NFTs," says Zulfacar, who, together with his license.rocks colleagues in the "Collective Berlin", is a musician: enabled people and artists to create and sell NFT tokens together. "Polygon is a tool to create inexpensive and environmentally friendly NFTs." These could soon be even more climate-friendly. The Polygon network recently made a $20 million investment to become carbon neutral by offset in 2022. The environmentally conscious artists who license.rocks supports with workshops on NFTs will be happy about that. Just like other plans of the startup: together with Picanova, the world market leader in the field of individualized wall decoration and interior design products, which recently acquired a stake in license.rocks, it is planning a platform that will enable artists and designers to individualize, with to offer print products such as wall decorations, clothing and accessories related to unique NFT collections. This platform aims to connect the on-chain and off-chain worlds.

NFT goes to the museum

Other NFT projects in Berlin are also exciting. An example of this opened at the end of 2021 with the temporary Urban Art & Culture exhibition GO! NFT its doors: More than 80 artists from the fields of graffiti, tape art, installation, mapping and augmented reality took part. Also included was a blockchain-based crypto art available as NFT (Non-Fungible Token). Come to stay, on the other hand, is the motto of the world's first decentralized NFT museum, Musee Dezentral im Metaverse. "Our vision is the way art is presented on the blockchain, which revolutionizes the exchange between artists and art collectors - to make it possible without borders and completely free of the restrictions of physical space," describes Frank Hahn, CEO of the Berlin startup RAVE.SPACE. who brought this "affair of the heart" into being. "For this purpose, we have developed a tailor-made graphics engine that enables access from any device - regardless of whether it is a conventional smartphone or the latest VR technology. We offer a total of 222 unique frames in different exhibition rooms and on different levels as NFT. Each frame gives the NFT owner access to a space on the museum wall and the opportunity to display their own owned NFTs. This means: The Musee Dezentral is not curated by a central institution, but by the 222 (changing) partners.” Everyone issues the NFTs themselves, but the framework NFTs are on the Ethereum blockchain as the ERC-721 standard mined. Hahn is hoping for the upcoming switch to PoS in order to counteract the "huge hunger for energy". After all, RAVE.SPACE still have a lot planned: further museums are to be launched in the cosmos before the end of this year.

"In general, the use case of NFTs has just been scratched," Hahn is convinced that the technology will significantly simplify processes, for example in areas such as real estate or healthcare. This also offers opportunities for the large number of Berlin companies that use blockchain technology. "However, we have to be careful that we don't just follow the US hypes, but rather develop really sustainable solutions," adds Daud Zulfacar from license.rocks. What is successful across the pond does not necessarily have to work here in Germany. An example would be collecting baseball cards, which can easily be transferred to digital units such as NFT. "In the USA it's a huge market, after all it affects a fifth of the male population," says Zulfacar, "but we have this collecting culture Not at all.” For him, NFT is much more than just a value-enhancing JPG. It is a container for all sorts of creative ideas that arise depending on the user case. "In addition, I have an anchor of trust through the blockchain," he says.

Trust, decentralization, security and transparency - also with regard to your own CO2 emissions - these properties of blockchain can be advantageous in terms of sustainability. The scene will probably reach the goal that the world dreams of faster than many others: being Net Zero.