Failure To Regulate NFTs and Crypto Currencies Will Lead to Catastrophic Environmental Implications
Charlene Echeverria Burciaga
Loyola University Chicago School of Law, J.D. 2023
Non-fungible tokens (NFTs) are emerging digital assets with numerous rights and obligations. However, regulations and laws in the United States are only barely beginning to catch up, and NFTs consume nearly as much energy as a small country. Without NFT regulation, climate change catastrophes are likely to be evident sooner than expected.
What are NFTs?
NFTs are cryptographic assets with unique identification codes and metadata; therefore, they cannot be traded or exchanged. NFTs can only be owned by one person at a time, creating scarcity and uniqueness. NFTs have been gaining traction recently, with many celebrities and investors pouring thousands of dollars into digital items. NFTs allow for art, collectibles, and even real estate tokenization. Celebrities’ creation and sales of NFTs have also skyrocketed. Paris Hilton, Grimes, and Jay-Z are a few celebrities that have invested in NFTs and furthered NFTs into the mainstream. Unlike cryptocurrencies, where you can trade one bitcoin for another because they are worth the same amount, NFTs are all unique and are not equally exchangeable. Therefore, the self-made scarcity makes them coveted and worth millions of dollars.
Generating energy for NFTs
Contrary to common belief, cryptocurrency and NFTs have an exceedingly tangible effect in the physical world. To maintain NFTs and cryptocurrencies, a vast network of computers, constantly working, generates tons of energy. There are companies and individuals known as “miners” who are competing to validate bitcoin transactions by having computers that are expending a lot of energy to be the first to solve a mathematical problem. These computers utilize about nine years’ worth of household electricity to solve the math problem before anyone else. The more people begin to mine, the more complex the math problem; thus, people are investing millions on having warehouses filled with computers to create better odds.
Bitcoin mining generates 97.14 metric tons of CO2 per year, equal to the carbon footprint of Kuwait. The Ethereum, where NFTs are stored, creates 21.35 metric tons of CO2 per year, which is the carbon footprint of Sudan. That equates to one single Ethereum Transaction consuming as much electricity as 10,595 hours of YouTube. Furthermore, energy miners often use cheap energy such as fossil fuel for each transaction to maximize profits. The United States is now the leading cryptocurrency miner, expending nearly thirty percent of the energy used for mining.
The proposed regulations
The Paris Agreement attempted to maintain the Global temperature under two degrees Celsius to combat environmental catastrophe. 169 nations came together and agreed to begin reducing emissions. However, the wasted energy in enabling NFTs and cryptocurrencies is likely to negatively impact the Paris Agreement’s progress. The carbon emissions generated from Ethereum alone equal the combined annual carbon emission of the 84 least carbon-extensive countries. Therefore, any progress that the Paris Agreement has made may be deemed obsolete if NFTs and other crypto valuables are not appropriately regulated. Environmental groups have called for regulations requiring NFT transactions to be more transparent about the total carbon emission associated with each sale. This transparency is likely to cause people to think about the worth of owning or selling NFTs if they see the catastrophic effect. Due to the elusive nature of the crypto world, many are not aware of the energy it takes to maintain it. Therefore, creating transparency might clear up any misconceptions and misunderstandings on how it functions.
Others have contemplated its complete ban, such as in China, which has reduced its energy expenditure to zero. However, with Facebook’s recent announcement of the Metaverse, it is unlikely that countries such as the United States will be willing to lose their footing in the crypto world. Therefore, many companies are beginning to consider green energy, also known as renewable energy to run mines and reduce their carbon footprint. Therefore, regulations can include investments into renewable energy sources to offset the growing carbon footprint. Energy expenditure will continue without regulations because of its incentives within the crypto world are so great, consequently advancing global warming and environmental catastrophe faster than ever before.