NFTs, Non-Fungible Tokens, have seen accelerated adoption in the last few months, despite being first used on the Ethereum blockchain back in 2016. The reason for the sudden acceleration and adoption has much to do with the dollars being exchanged behind the scenes. This has left many artists wondering how they too can take part in this seemingly new, and profitable, artistic venture. But recent reporting on the power consumption and ecological impact has many reconsidering venturing down the path of getting into NFTs. With more questions than ever around this, I wanted to share my knowledge of the crypto space, and explore the ethical implications behind making crypto-art.
So just what are these NFT art tokens anyway? Without going into the entire history of the blockchain, it is important to have a cursory understanding of the technology underlying this movement. NFTs are currently in use across multiple different blockchain technologies and are not exclusive to one type of cryptocurrency. That being said the majority of NFT transactions are taking place on the Ethereum blockchain. So we will talk about how they work with Ethereum, what they cost to make, and why.
Understanding Distributed Ledger Technology
Bitcoin introduced the concept of a decentralized database, also known as a Distributed Ledger Technology, or DLT. Ethereum improved on this DLT model by adding what are called smart contracts, which are essentially a way to automate a process. While smart contracts truly revolutionized crypto, it is more important for us to discuss DLT. It may be helpful to think of a world without DLT. For example, let’s say that you were asked to maintain a list of bank accounts and the value in them. You may be tempted to alter the amounts for these accounts to give yourself or others more money. But what DLT does is make sure that your data matches the data of thousands of other people anytime there is a change to the accounts. So you would have to get everyone in agreement with your change, before it would actually be changed.
Why Crypto Transactions Cost
But like most people, if you are asked to do a job, like maintaining this DLT, you want to be compensated for your time and costs. This is why the people who maintain this list are compensated with more Ethereum for their trouble, which they can then sell on exchanges for money. These Ethereum “miners” pay for the power and internet required to decentralize this database record and it turns out to be pretty profitable. But more “miners” also means more computers using more power. And every time you make a transaction that needs to be recorded on the digital ledger you have to pay these “miners” to update their records in what is called “gas”.
While it is called “gas” it is more akin to a toll built on top of a real-time auction platform. Think of it as the parking lot gate at Disney World. Except it isn’t a flat fee, people instead bid to get access to the park earlier. And like a parking lot, and you can only fit some many cars (transactions) in the parking lot (a block, as in “block”-chain). And speed does matter here, because being early may mean you get access to buying that exclusive unique NFT before someone else. If you don’t bid high enough your transaction could go from taking seconds, to hours, or even days to process when bids are lower.
Complexity of NFTs
NFTs are more complex than a traditional transaction on Ethereum. Because they are more complex, the data requires more transactions to be completed. This means that in order to make a single unique NFT, you may be paying 5 to 10 times the “gas” costs of a normal transaction. But this itself doesn’t affect power consumption or create a climate problem. As the usage of the Ethereum network grows, more people are paying more money in the form of “gas” costs, which makes “mining” more profitable. When it is more profitable you see even average people buying more graphics cards, and companies increasing the size of their server farm to capture more of this profit. More profit means more machines which means more power usage. Ironically the more “miners” there are, also means that the “difficulty” of “mining” increases, which ultimately means even more power is used in the real world. The theory here is by making it more costly to “mine” with these increased power costs, it reduces the number of people who can profitably “mine”, so it prevents the number of “miners” from increasing exponentially.
Is The Artist Responsible?
So what does this ultimately mean for the artist who is wanting to earn some extra cash by making their artwork into an NFT? Contrary to recent opinions, a single artist making an NFT isn’t like burning down the rainforest. One person on their own, isn’t going to make a difference to the power cost. To understand why, lets alter our Disney Parking Lot analogy to instead be a bucket that can be filled with water. Think of each blockchain transaction as a drop of water in a bucket. One drop isn’t going to fill the bucket. But even if there were only one drop in the bucket it is still going to be moved and then poured into the pool. And there will still be “gas” costs and power usage in moving that bucket.
But now we start to enter the realm of game theory. One artist making one NFT isn’t hurting, but what about 1000 artists making 1000 NFTs? Now that does start to change things. Because collectively this extra traffic is increasing the number of transactions, which increases the traffic and encourages bidding higher “gas” fees, which in turn brings more computers using more power which means power plants have to produce more power to meet these power needs, which often means burning fuel and harming the environment. And now we do get the ethical question behind any usage of crypto, am I a bad person for wanting to make money with this technology?
Who Is Responsible For This Power Consumption?
To answer this question, let us examine all the players here. We have the NFT creator (“artist”), the Ethereum “miner”, the Ethereum development “team”, the collector/price speculator (“buyer”), and the power company. Starting with the power company, are they not ethically responsible for producing clean power? The person on the other end of this transaction is choosing to pay for this artwork, despite knowing the ecological costs, shouldn’t they hold some responsibility here? What of the people who developed this power-hungry model on the Ethereum development team, couldn’t they have done something that consumes less energy? We know the Ethereum miner isn’t doing this out of the goodness of their heart, and they more than anyone know the amount of energy that this is using, clearly they are the bad guy here? Leaving us with our artist who starts this process by making something of value, no one could even make the power-consuming transaction if there wasn’t this artwork to begin with!
Except this isn’t how it works in reality. NFTs are being created by more than just artists, and unlike many artists, there is no care about these power costs. At the center of everything crypto is greed. So I propose a re-order based on this idea of greediness. The buyer is perhaps the most greedy. The buyer is perhaps most responsible for the increase in the number of transactions. Without their price speculation, there wouldn’t be this explosion in demand. The next most greedy group is likely to be the “miners”. “Miners” know the power demand this uses, but they know they are making more money by running this equipment than not. Power generation varies by region, and there are better power companies than others. But at the end of the day, most power is still coal, because coal is cheap, and they would argue too costly to build new power plants or retrofit existing ones. I would put our artist in 4th place of our greed rankings, as money has definitely brought them to the idea of making an NFT. This only leaves us with the development team which is perhaps the least greedy, many are purely volunteers, but perhaps most responsible for everything. The Ethereum Foundation knows the costs behind their technology, and while they are working to improve it with Ethereum 2.0, their earlier development decisions created this power demand in the first place.
Guilt By Association?
So who is guilty here? Everyone shares guilt in their own way. But many of these problems exist in our everyday lives. Buying from Amazon is easy, but bad for the environment. Driving instead of using public transit, biking, or walking. Consuming meat, flying in an airplane, heating water, and 1000 other things all consume power, and all have alternatives that don’t or consume less. We make these trade-offs every day because ultimately we must all make choices that make our lives easier, better, or just pays the bills. The ethics of crypto is ultimately an individual choice that you have to come to terms with, but one thing that must be avoided is shaming anyone for their decisions here. Your actions to shame won’t help the environment, because you aren’t attacking the core issue. You can always educate and discuss the topic, but trying to make someone feel bad for their individual decision, which has little to no impact individually, should not be your first go-to. And even then, you can easily argue there are people more responsible than the artist trying to make a living with NFTs. There is room for everyone to participate here, and we can work collectively to try and change how crypto works, and how it is used for the better. This requires talking to the right people, who have the power to affect change, like the Ethereum Foundation, the government, and power companies.
Let people make their own path for success, even if it is part of the larger problem. Their choices won’t affect the whole outcome, only their individual outcome. For now, I will just leave you with these words by modern-day philosopher Cage the Elephant:
“Oh, there ain’t no rest for the wicked
Money don’t grow on trees
I got bills to pay
I got mouths to feed
There ain’t nothing in this world for free
I know I can’t slow down
I can’t hold back
Though you know
I wish I could
Oh, no there ain’t no rest for the wicked
Until we close our eyes for good”
