Is NFT an Eco-Friendly Alternative to Physical Merchandise?
Blockchains and NFTs have dominated social feeds and Google’s front page for the past two months. While they blew up in popularity among crypto-enthusiasts two quarters ago, it was only recently when NFTs breached the mainstream market, after a digital artist named Beeple made history selling a PNG for $69 million. After a string of successes among lesser-known artists, some are now convinced that there’s a once-in-a-lifetime financial opportunity in NFTs. The market has become dense with various digital assets, from gifs to music and sports collectibles––and they’re still selling!
Naturally, the meteoric interest in virtual goods has sparked discourse over value, and more importantly, about whether or not NFTs are an eco-friendly replacement to physical merchandise.
Understanding The Value Behind NFTs
The first thing that may have come to mind upon hearing about how PNGs sell for millions is “Why?”
First and foremost, NFTs are non-fungible tokens, digital assets minted from a blockchain, and derive value from their unique characteristics. This uniqueness is in the form of an irreplicable private key––a string of letters and numbers that can decrypt the cryptographic lock behind an asset. Think of it as a key to a vault, and in that vault lives an artwork. Except everything is digital: NFTs don’t take on a physical form. Artists might give out a physical printout of the NFT upon purchase, but it’s no more than a souvenir––a gift with purchase. What you’re really buying is the rightful ownership of a one-of-a-kind digital asset.
That sense of scarcity and the interest in speculative assets is what’s driving the NFT market today, pushing collectors to vie for the most coveted pieces that make a statement.
The Overlap Between NFTs and Physical Merchandise
NFTs are digital assets and have been posted on the internet, which means anyone can save the file on their computers. However, only the person who holds the private key is the rightful owner of the NFT. That ownership can extend to obtaining licensing and distribution rights, but only if there’s an agreement between both parties. Remember the infamous Nyan Cat meme? It sold for $600,000. You might have a T-shirt with a Nyan Cat on it, but that doesn’t make you the owner of the original Nyan Cat file.
By putting things into perspective, there’s no difference between NFTs and famous artwork sold in auctions. For instance, there’s only one of Van Gogh’s Starry Night in existence despite there being millions of products with the same print. Yet only the person who has the original, physical painting has ownership to it. NFTs follow the same train of thought, with the only difference being that they operate in the virtual space.
The concept of spending money on virtual ownership may seem ridiculous at first, but consumers have, for years, demonstrated an interest in spending money to fulfill online dreams––mainly in video games. The gaming industry thrives through in-game purchases, where players spend millions on virtual products. These aren’t NFTs, so there isn’t unique ownership attached to the goods, yet they drive consumerism anyway.
As the bridge between real-life and virtual worlds begins to overlap, brands need to think of ways to help consumers fulfill their desires beyond the screen, which is why large-scale NFT merchandise adoption is considered in this day and age.
The Ecological Dilemma
According to a study by McKinsey, the average supply chain for consumer goods accounts for over 80% of the world’s greenhouse emissions and over 90% of the negative impact on natural resources, such as land, water, and air. With these massive numbers, it’s clear that physical merchandise negatively impacts the environment, even amid calls for sustainability.
In theory, digital assets are a lot more eco-friendly because there isn’t any physical manufacturing and delivery involved, essentially cutting the entire supply chain. Transactions are handled between the NFT owner, the marketplace, and the buyer, so it’s a straightforward process that only requires physical labor and some electricity to complete.
However, the next-to-nothing NFT carbon footprint is no more than an idea today. Because most NFTs are minted through Ethereum, they’re directly fueling one of the most unsustainable blockchains in existence. Ether (ETH) is minted through the Proof-of-Work algorithm, which, on average, consumes 31 terawatt-hours of electricity per year. That’s approximately the same amount of electricity that powers the entirety of Nigeria. Ethereum has also reportedly emitted over 96,000,000 tonnes of CO2 since its public release less than a decade ago.
While NFTs will greatly reduce landfill waste, the benefit is offset by massive energy consumption. The bottom line is that both physical merchandise and NFTs are harming the environment in big waves, so one isn’t objectively better than the other.
What Institutions Are Doing to Solve the Ecological Problem
The good news is that institutions aren’t sitting around waiting for the world to burn up. There’s been plenty of initiatives working to combat the unsustainable NFT sector while promoting its growth, including the following:
- Ethereum is migrating to a new mining model called the Proof-of-Stake, which doesn’t consume an exorbitant amount of electricity. However, that change is expected to come years down the road.
- The newer generation of blockchains, led by frontrunners like Polkadot and Cardano, already utilize more sustainable models that consume significantly less electricity than Ethereum. However, there needs to be a platform that can mint NFTs on the same level that Ethereum does, prompting the race for the next big blockchain to back the non-fungible industry.
- Platforms like DIGITALAX, which doesn’t rely on Ether, already exist! Their virtual, game-compatible skins are sold through $MONA, which are pre-mined tokens, hence the removal of energy-consuming processes in-between. However, this platform caters to the niche gaming space, so other blockchains still need to be developed to empower various industries.
There’s massive potential for NFTs to replace physical merchandise in the future, especially considering how consumers have already formed an attachment to virtual goods. That starts by addressing the sustainability issue through more eco-friendly blockchain best practices.
If the hype for high-priced assets dies down, it’s likely for the NFT sector to shift to more consumer-friendly and affordable products in niche spaces, like the video game and digital fashion industries, which are defined by the quest for unique pieces.