There’s a new internet craze people are obsessed about. People are trading digital art and collectibles on the internet that costs millions of dollars. They are called NFTs or non-fungible tokens.
What am I talking about?
For instance, this digital artwork by artist Beeple called “Everydays — The First 5000 Days” was sold for $69 million dollars!
Here’s another NFT collectible of a video highlight of Lebron James dunking. Believe it or not, this short clip was sold for around $200,000 on the internet!
Not only digital art and collectibles are solds as NFTs. Even CEO of Twitter, Jack Dorsey’s first tweet was sold for $2.9 million!
Who would’ve thought that a public tweet that can be viewed by just about anyone be bought at more than a million dollars? At this point, all I could think is — what is money? How can someone buy digital ownerships at absurdly expensive prices?
What even is an NFT anyway?
NFT is a Certificate of Ownership on a Virtual Asset
Non-fungible tokens are assets that can’t be exchanged for anything because they are unique. One way to illustrate this is by comparing a $10 bill and the Mona Lisa painting.
A $10 bill is a fungible asset because it can be exchanged with a different $10 dollar bill from a friend or with two $5 bills.
On the other hand, the original Mona Lisa painting can’t be exchanged for anything because it is a prized collection. You can’t exchange it with a printed Mona Lisa card, for example. If you want the Mona Lisa painting in the Louvre, you have to buy it — that is, if it’s even for sale which isn’t the case.
Non-fungible tokens are unique digital pieces that are sold online through blockchain technology. A blockchain is described as a public ledger that records and stores information in groups called blocks. When a block is filled with stored data, it is linked to a fresh block to store more data then to another and so on — until it creates a chain of database.
The blockchain make NFTs unique. When a buyer receives an NFT digital art, it comes with a unique code that contains its long history of transactions. Think of it as a virtual asset that comes with a long digital receipt. All these information are public, permanent, and thus decentralized.
How Does a Virtual Asset Become an NFT?
Beeple sold a digital artwork, NBA Top Shot sold a video footage, and Jack Dorsey sold his first tweet — all are NFTs. Other more absurd examples are virtual kittens called “Cryptokitties”, a GIF of a rainbow cat meme, and an NFT music album by the Kings of Leon.
NFTs can be sold as artworks, music, virtual goods, digital collectibles, video footage, and sometimes, real-world assets such as cars and real estate. If you want to sell any of these as an NFT, you first have to “tokenize” it.
You do this first by finding a blockchain where you can issue your NFT. The largest NFT ecosystem today is Ethereum. For example, a digital artist pays a fee to Ethereum miners to put their virtual asset on the blockchain. This requires complex computations within a network system of computers. Once your virtual asset has a unique code within the blockchain, you can now sell it in NFT marketplaces.
What’s With the NFT Boom?
Most people say it’s just a phase — another digital bubble.
It’s all just speculation whether NFT investment will still be here in the long run. It could run its short course and eventually die down. Or it could be a promising area of modern investment. Remember Bitcoin? We thought it was a sham back in 2007 but look how valuable it is now.
As much as I want to understand why people put so much value on a tweet that they literally pay millions for it, I think we should have known that human emotions are unpredictable. We can be irrational and out of reason. Cryptoart NFTs were almost unheard of in 2018. But all of a sudden there was a sharp rise of NFT attention in 2021.
Sometimes we could not understand why people collect comic books, or action figures, or designer shoes and bags, or just about anything they are passionate about. We’re just in awe of them spending a lot on something they value a lot.
I think it works the same with NFTs, but in a digital platform. The NFT boom is a gamechanger for digital artists. They can now showcase their work, put it on sale without a middleman, and hope that someone with the same passion can see value in it.
Here’s the Plot Twist: NFTs are Harming the Environment with Its High Carbon Footprint
With my growing interest in finding out what make NFTs appealing, I came across an article from Earth.org that piqued my curiosity. The article’s title is “Are Cryptocurrencies Harming the Environment?”.
Hold up — I’m still reeling with how NFTs are making millions online. How the heck does a tweet, or an artwork, or a video of Lebron dunking harming the environment? It doesn’t make sense!
But as I read I read the article, I slowly connected the dots. Remember the blockchain technology that consists of a network of computers performing complex calculations? Those computers use energy — energy coming mostly from fossil fuels.
The most widely used cryptocurrency is Bitcoin. According to a Forbes’ article, a single Bitcoin transaction consumes energy equivalent to that of an average U.S. household over 24 days. Data by the University of Cambridge shows that if Bitcoin was a country, it would be one of the top 30 energy users worldwide behind Norway.
Turns out, it’s not NFT’s per se that are contributing to the world’s carbon footprint — it’s the blockchain technology. Cryptocurrencies and NFTs are non-green investments.
What NFT Markets Have to Say About Their Environmental Impact
SuperRare is a digital market in Ethereum. Their team released a Medium blog post about the energy consumption matter. In their post, they touched on 2 main things:
- They acknowledge that Ethereum is an energy-intensive platform. But they are working on a long-term sustainable solutions. One of which is releasing an improved, energy-efficient framework in 2022.
- They clarified that the number of NFT transactions has no impact on increasing electricity consumption. Backed with a scientific study by the University of Cambridge, they claimed that Ethereum has a fixed energy consumption at a given time.
Blockchain Technology Has a Lot of Learning Curve For Sustainability
We can’t really pinpoint blockchain technology as an antagonist in a world aiming for sustainable solutions. On one hand, energy producers are responsible for harnessing clean energy for the world to use. But on the other, blockchain technology is contributing a significant amount to the world’s energy demand.
In my opinion, let’s give it a benefit of the doubt. Blockchain is a fairly new technology with a lot of issues to improve on — sustainability being in the forefront. As long as these issues are brought to awareness, it could lead to a better change. Who knows, maybe the blockchain industry could push the energy industry to shift to clean energy at a much faster rate.
But there’s also a risk. Blockchain technology is decentralized which means no one could really enforce and regulate them to shift to a more energy-efficient platform. However, this is an on-going development that we have yet to see.
For now, it’s pretty much clear that NFTs and cryptocurrencies are non-green investments. But a lot could change with new technologies. Stick your foot in the doorway just in case positive outcomes may come out of it.