The long-awaited future of the internet of value has arrived at the arts market. Non-Fungible Tokens (NFTs) are irreplaceable digital assets – normally certificates of ownership and transaction – which are added to a given blockchain using the same technology that is used in cryptocurrencies, such as Bitcoin. The main reason for the large support NFTs have been receiving is the possibility of creating trustworthy, enforceable, and decentralized trade markets, giving more power and lucrative rights to the content creator, in comparison to traditional markets. In fact, earlier this month, a record was broken for the most expensive art sold through NFTs. Beeple’s “Everydays: The First 5.000 Days” was sold for 58,4 million euros in a Christie’s auction.
However, the blockchain technology behind NFT, also bring some challenges. Most NFT markets use the Ethereum blockchain, created by Soviet-Canadian Vitalik Buterin, when he was 19 years old. This specific blockchain uses the “Proof of Work” method, where innumerous mining computers around the world compete to verify and authenticate a given action in the blockchain, such as a transaction, receiving cryptocurrency as a reward. The issue is that this competitive method has incentivized “miners” to build larger and more powerful mining computers, to have a competitive advantage and claim more rewards, getting higher profits. As a result, simultaneous computers, which, due to their size and power, need to consume more energy than normal, are performing the same task at the same time, although only one of them will actually finish the task.
This energy consumption is sizeable. The same energy spent in the release of a single-edition NFT could be used to cover the average electricity consumption of an EU resident for a whole month, or the use of a computer for 10 straight months. There would be no problem with this energy consumption was it clean, renewable energy. However, the overwhelming majority of mining farms are based in China, whose energy grid still relies 88% on fossil fuels . The creators behind Ethereum have showed their willingness to switch to a “Proof of Stake” method, where authenticators are randomly assigned on the “stake”, or collateral, they give. Since this method takes out the competitive aspect of authentication, it uses infinitely less energy. Despite the plans for Ethereum to migrate to a “Proof of State” blockchain, there is not still an expected time target.
- Akten, M. (2020). The Unreasonable Ecological Cost of #CryptoArt, Medium, https://memoakten.medium.com/the-unreasonable-ecological-cost-of-cryptoart-2221d3eb2053.
Students of the Master’s Degree in Economics
Nova School of Business and Economics