As Ethereum takes its final step towards The Merge, it will change the cryptocurrency consensus mechanism from Proof-of-Work (PoW) to Proof-of-Stake (PoS). This improvement could also be the solution to fix non-fungible-token’s (NFT) energy issues. In simple, the Ethereum network is all set to be 99 per cent less energy-intensive, shifting the power from the hands of crypto miners to a completely decentralised mechanism, where nobody controls the Ethereum network.
Crypto mining consumes a lot of hash power (computational power) and resources because of the PoW algorithm. It works by having all nodes (devices) solve a cryptographic puzzle. This puzzle is solved by miners and the first one to find a solution gets the reward. This has led to a lot of competition and situations where people are building larger mining farms.
The more hash power you have, the easier it becomes to mine a coin. To increase their chances to win further, miners come together in what’s called mining pools, where they combine their hashing power and distribute the rewards evenly across, ultimately causing miners to use enormous amounts of electricity.
It should be noted that Ethereum is the only token that offered the potential to look at blockchain as more than just a method to transfer money. The technology was developed to build use cases, and one popular innovation is NFTs. Minting (creating) a digital asset is popularly done on the Ethereum network, and it is a natural choice for 95 per cent of NFT buyers, as per DappRadar metrics.
This is because Ethereum-based NFTs are highly secure, and has a huge potential market, which means are sold for a much higher price. Popular NFT marketplaces like OpenSea, Rarible, and Nifty gateway are all based on Ethereum’s network.
However, minting NFTs through Ethereum requires intensive energy. For this, we have to understand what happens behind the scenes when an NFT is minted or created on an Ethereum blockchain. So, if you decide to mint an NFT, the transaction now has to be verified which is done via validators or in simpler words ‘crypto miners’. Imagine hundreds of thousands of transactions being verified every minute on Ethereum, this requires thousands of computers working together in a pool to verify every transaction, making the NFT minting process energy intensive.
According to a research by NFT Club, adding any NFT to a blockchain uses around 83 kg of CO2. This is not it. Once the NFT is mined, the carbon cost of each individual piece of NFT continues. Every time a bid is submitted for an NFT it costs 23 kg of CO2, every sale of an NFT produces 51 kg of CO2, and every transfer of an NFT produces 30 kg of CO2.
But, this could all go if Ethereum switches from PoW to PoS. Rather than competing against each other for a block, PoS uses a process in which one miner is chosen randomly. This makes PoS a more efficient method. Meanwhile, Ethereum based NFTs that work on PoS will not only be environmentally friendly, but will also be a cheaper alternative.
“Trading and minting NFTs on Ethereum is expected to be cheaper due to sharding and the proof-of-stake consensus algorithm. The ETH PoW consensus was causing major issues of transaction congestion and mounting fees. With the Merge, this will be discontinued enabling multiple new opportunities in the NFT as well as DeFi markets including lending and borrowing of NFTs,” Anshul Dhir, COO and co-founder at EasyFi Network, a DeFi platform told indianexpress.com.