Six months ago, an extremely small number of people even knew what a Non-Fungible Token (NFT) was. Last month, OpenSea, the leading NFT marketplace, recorded $3.4 billion in transaction volume for the month of August. It’s obvious that NFTs have captured the interest of many, but unfortunately some of their largest drawbacks seem to have been easily overlooked.
I think the best way to start is by explaining what NFTs actually are. NFT stands for Non-Fungible Token. One easy way to describe the concept of Non-Fungible Tokens is to look at the change you may have in your wallet. Let’s say you have a $1 bill. If you wanted, you could trade that $1 bill for another dollar and the currency you have would be identical in every way. Now, let’s say you have a $1 bill that has been signed by President Barack Obama. Although this dollar is technically worth the same as another dollar bill, because it has been signed by a former president of the United States, it is completely unique and could not be replicated. This same concept applies to NFTs. The token that is assigned to whatever item you have is completely unique to that item and thus makes your item one of a kind.
The image above is from an NFT collection known as Ether Rock. Shockingly, this image sold for 790 Ether, or approximately $2.6 million on September 7th. It is somewhat surreal to think that someone would pay this much for an image of a rock, or $24.4 million for 101 unique NFT images from the Bored Ape Yacht Club that recently sold at a Southbey’s auction. This may annoy some people, but in a way, I think this craze and ludicrous price inflation that NFTs are currently going through really isn’t that different from many of the prominent art movements or art pieces that we have seen in the past. For example, most of the work done by renowned abstract expressionist Jackson Pollock to this day is often criticized by those who have little understanding of art. One phrase these people tend to throw around a lot is, “I could have done that.” While his paintings may appear simplistic on the surface, the reason his work and many other abstract expressionists are held in such high regard is due to the environment in which these paintings existed: how the artist’s style evolved, where the art was exhibited, the state of the culture, and what established norms these strange paintings challenged.
The same thing is true for NFTs. Although many may find it incomprehensible that someone would pay $2.6 million for a JPEG image of a rock, for the individual who paid that sum it is likely much more than just an image of a rock. It is a symbol of technologies they truly believe in, such as cryptocurrencies, blockchain, and decentralization, finally coming to fruition. For them, it symbolizes the start of a new system, a bold new future that challenges the status quo.
However, this new system also costs society magnitudes more energy and resources than Jackson Pollock did creating one of his paintings. Here lies the greatest crime that this new craze of digital images commits against society. The energy required to support this new fad is astronomical. Blockchain technology utilizes the computing power of thousands and thousands of machines to continually verify that the transactions that take place are in fact valid. Currently, many of the NFTs that we see today are stored on the Ethereum blockchain which currently consumes around 72.21 Terawatt-hours of electricity per year. This is roughly the equivalent of the entire yearly energy consumption of Colombia. Furthermore, a single Ethereum transaction consumes 162.25 kilowatt hours of electricity, or roughly the equivalent power consumption of an average U.S. household over 5 days. When Jackson Pollock or practically any artist for that matter creates a painting, they can do so with very little ecological impact on society. Meaning, the materials they use, or the way in which the art is displayed or auctioned, often presents little environmental cost or risk. The same can not be said for NFTs. With the numerous global problems that we face every day, it’s sad to think that this much energy and resources are partly being used to fuel an economy where people can just pay millions of dollars for cartoon images of rocks.