NFT Analysis – Page 7 – NFTexplained.info

The amount of energy an NFT uses varies depending on which blockchain does the transaction verification. With Ethereum, a proof of work consensus algorithm is used which takes an enormous amount of energy. An NFT minted on a different blockchain, with a proof of stake consensus algorithm typically uses much less energy. It is important to understand that making NFTs are not the issue with high energy consumption; it is the proof of work consensus algorithm that Ethereum uses to verify transactions that uses lots of energy. We will explain exactly what proof of work and proof of stake is later in the article to help you understand why the vast majority of NFTs use a lot of energy. First, let's begin with a brief introduction as to what an NFT is. NFTs or non-fungible tokens are unique digital assets that take the form of a variety of digital media and are stored on the blockchain. Each NFT is unique and therefore has the ability to retain value or increase in value; each token owner possesses full ownership as digital certification is created when an NFT is minted or created. If you would like to become an NFT expert, we have created an article explaining exactly what they are and how they work; that can be found here. The cryptographic technology that NFTs use are constantly being changed and improved as refinements are made. Blockchain technology and the creators who make the technology are working in a relatively new space and therefore energy usage for the blockchain may be higher at this time; however, our team here at NFTexplained.info thinks the power usage of crypto overall - and NFTs specifically - will become more environmentally friendly as time goes on. How Much Energy Does An Ethereum NFT Use? Ethereum is the most commonly used blockchain for NFTs, and uses a proof of work consensus algorithm. This Ethereum transaction uses roughly 48 kWh which can be equated to roughly the amount of energy used by a U.S. household for 1.5 days. It is the consensus algorithm that uses so much energy, not the NFT itself. Created by: NFTexplained.info To understand exactly how much energy an NFT consumes, we must look at the process in detail to have a better understanding. For an NFT to be sold it must be listed on a marketplace. At present the most popular marketplaces often denominate purchases in Ethereum. For example, you list an item on OpenSea, the largest NFT marketplace. If you want to read our in depth article explaining exactly what OpenSea is and how to use it click here! After the item is listed on OpenSea or another NFT marketplace, the minting process occurs which is what tokenizes the digital item or creates verifiable information pointing to the location of the item on the blockchain. This occurs when someone purchases an NFT in marketplaces that use "lazy minting" like OpenSea. Additionally, when an NFT is created on a seperate marketplace, it is automatically tokenized unless the marketplace also uses lazy minting. When an NFT is purchased, a digital receipt pointing to the location of the digital asset among the blockchain is created and stored in the purchaser's wallet. Our team has created an in-depth explanation as to the way MetaMask is used; this is the most commonly used wallet among users to store NFTs. Miners must solve an algorithm which can be described as numerous complex math problems (or group of blocks in the blockchain) that store the information providing ownership of the digital asset which essentially makes it possible for the user to own a digital receipt. Why Do NFTs Consume So Much Energy? The NFTs on Ethereum's blockchain use a large amount of energy because of the proof of work conesus algorithm. This means numerous miners are competing to verify the tokenization of the NFT; only the first one will successfully receive commission for their work, while all the other miners use energy without receiving commission. Created by: NFTexplained.info In a proof of work consensus algorithm, the process consumes a lot of energy as there are numerous miners looking to solve the same group of blocks in order to receive a commission for their work. This is known as a gas fee and the price varies depending on the number of users transacting on the Ethereum network. This is what allows miners to make a profit regardless of the high energy cost they incur. It is important to note that only one miner will be the one who solves the group of blocks in the blockchain that prove that a person is the owner of the digital item. Unfortunately, all the other miners who were solving the blocks will not receive a commission for their work and will unfortunately consume a large amount of energy. This is what results in NFTs driving high energy consumption. What is Proof of Work? Proof of work is the challenging, energy intensive process that causes miners to compete with one another to be the first to complete the algorithm and be rewarded for solving the blocks. This can be described as an ‘arms race’ between miners with those who have more computing resources solving random algorithms faster and therefore receiving the reward. Created by: NFTexplained.info The huge disadvantage with proof of work is the amount of energy that is consumed in the mining process. As more and more demand arises for Bitcoin, a cryptocurrency that relies upon proof of work, an increasing number of high powered computers will be competing amongst one another. It is important to note that numerous other cryptocurrencies also use the proof of work algorithm. The amount of energy Bitcoin mining currently uses can be compared to around the same amount of energy the Netherlands uses annually in 2019 according to the International Energy Agency and the University of Cambridge. This is due mainly in part because of the number of minors competing against one another to solve the algorithm first. Higher processing power is encouraged in the proof of work consensus algorithm as a miner with more processing power will be able to solve the arbitrary algorithm faster and therefore be the first to solve and encrypt the transaction into the blockchain; that specific miner would be the only one who is rewarded. As more and more miners have jumped in on this process, more expensive and much faster processing power is required to be a competitive miner or to be the first one to verify transactions on the blockchain. Think about a Prius competing against Corvettes and Lamborghinis; the Prius would never win. In this analogy, the Prius is comparable to a computer with low processing power. One aspect that is important to note is that proof of work uses a lot of energy; however, it keeps the ledger incredibly safe from attacks. Another, more green process that is used in cryptocurrencies and is currently being implemented more is proof of stake, a separate consensus algorithm class. What is Proof of Stake? Proof of stake (PoS) is a consensus algorithm used to verify transactions on the blockchain. It is considered an environmentally superior alternative to proof of work, however, it is not used by Ethereum at the present time. In PoS, a validator is chosen to verify a transaction and there are no miners competing amongst one another which is what saves energy. Created by: NFTexplained.info Proof of stake (PoS) is a consensus algorithm that is considered more green and is effective as one single miner (or validator) is chosen to verify the transaction. This validator is often selected if they have a large number of tokens (depending on the algorithm). The single miner is selected by the algorithm to verify the transaction and is only rewarded with the gas fee. With this consensus algorithmic model, nobody is competing against one another to be the first to solve or encrypt blocks among the blockchain. This saves an enormous amount of energy as one single miner is working on the arbitrary math problem to solve the code, not an enormous amount of redundant solvers racing amongst one another. More and more cryptocurrencies are changing from a proof of work to a proof of stake consensus algorithm. This is one way in which cryptocurrencies are becoming more green and using less energy. Our team here at NFTexplained.info thinks that with time, all transactions will be verified in an energy efficient manner. Proof of stake is one way and a large step in making transactions with the blockchain energy efficient. How Much Does it Cost to Mint an NFT? The price to mint an NFT on the Ethereum network, the most commonly used blockchain for NFTs, ranges in price greatly; the cost is estimated to be roughly around $85 USD in gas. However, this can be more or less depending on the number of users looking to transact on the network. Created by: NFTexplained.info Minting an NFT is the process of creating a digital receipt on the blockchain and is specific to which blockchain is being used. This cost depends on the number of uses transacting on the network. When lots of users are looking to transact the gas fee of tokenizing the NFT will be higher. Some NFT marketplaces don’t mint an NFT until it is purchased, and the cost of the processing is passed along to the buyer. One aspect that is important to note is that the time of day in which you are looking to tokenize an NFT will greatly affect the price it costs. When tokenizing or minting an NFT on the Ethereum blockchain, miners are using a proof of work consensus algorithm and are competing to be the first to verify the transaction. If there are less people looking to transact, the fee will be lower as more miners are available to solve the puzzles faster. NFT Energy Consumption Comparison NFTs are most commonly minted on the Ethereum blockchain; each Ethereum transaction uses roughly 48 kWh using the proof of work consensus algorithm. Analysts estimate that the average NFT consumes 75 kWh in its lifetime (with all transactions taken into account). It is important to understand the amount of energy that an NFT actually uses; one way to do this is by comparing it to more understandable, widely known estimates. With the average household (among all states) using roughly 30 kWh per day our team here at NFTexplained.info has come to the consensus that an NFT on the Ethereum network uses roughly 2.5 times more electricity than the average household uses per day. It is important to note that the price of a digital asset has no implications on the amount of energy used. It is the tokenization and the exchanging of data that causes the higher amount of energy as each transaction must be verified and there are thousands of miners looking to verify that transaction with only one being successful. The exchanging of hands is known as provenance and our team has written an in-depth article explaining how it affects the price of NFTs; that article can be found here! Unfortunately, there are numerous NFTs that are being created and sold for very low prices which consumes an enormous amount of energy. The process of creating lots of NFTs and selling them at low prices seems to be gaining popularity. Due to the high energy consumption of NFTs at this point in time, artists such as Joanie Lemercier are taking action. The popular press widely reported Lemercier recently canceled the release of six works after calculating the energy cost. This French artist realized the sale would use the same amount of energy that powered his art studio for two years in only ten seconds! It is beneficial to look at these digital collectibles in a sense that can be compared to other processes that use energy. While it obviously uses far less energy than systems like agriculture it is still important to be informed. All the energy used is what makes the system so secure and decentralized. As time goes on, our team here at NFTexplained.info thinks that more and more cryptocurrencies will make the switch to a proof of stake consensus algorithm. Cryptocurrencies such as ETH2.0, Polkadot, as well as numerous others use proof of stake consensus algorithm. These cryptos grant one miner the authority to verify transactions based on the proportion of coins held which is incredibly energy efficient as no miners are competing. We hope you are just as excited as we are about NFTs and continue to stay informed at NFTexplained.info. To get the latest news in this rapidly evolving space, follow our team on Instagram & Twitter!