NFTs and the metaverse: Can the latest capitalist movement ever be part of a low-carbon future?
Over the last 12 months, billions of dollars have moved into the Metaverse market, with a key focus on Non-fungible tokens (NFTs). Businesses are eyeing up this opportunity but need to be aware of the huge environmental impacts surrounding this enigmatic new technology.
2021 saw climate change take centre stage under a spotlight fuelled by extreme heatwaves, catastrophic wildfires, floods and the key negotiations on a new global climate pact at COP26.
The IPCC described the climate crisis as “widespread, rapid, and intensifying”, and as the crisis spiralled, governments all over the world were taken to court for failing to tackle the severity of the issue. With our physical world, gripped by a pandemic, deteriorating to a near-irreparable state, it is somewhat understandable that others are looking for a new universe to call their own.
While some of the world’s most influential money-makers spent last year literally leaving the planet, others forged out their own positions in new and exciting virtual worlds that have already caught the attention of big gaming companies and retail bastions like Walmart and Nike.
Welcome, everyone to Facebook’s “Metaverse”.
As planet earth succumbed to the growing threats of the climate crisis, 2021 marked a monumental year for Facebook’s Metaverse concept and the crypto economy it is built on. The metaverse has been touted as the next big technological breakthrough; a blend of virtual worlds that allows users to access games, entertainment and new interactive approaches to commerce.
In a current linear economy of make, take, dispose, the Metaverse offers new approaches to consumption and capitalism; whether that’s beneficial or not remains to be seen. Users can access these virtual worlds and purchase real and digital ownership in new ways. One key new approach to consumerism that grew at an eyewatering pace in 2021 was that of NFTs.
NFTs are a new and booming crypto asset that provides proof of ownership for purchased assets, such as artwork, GIFs and collectables, by placing it onto the blockchain. You’ve likely already seen the likes of Justin Bieber, Gwyneth Paltrow and Rio Ferdinand change their Twitter Avatar to some sort of cartoon animal. That is their NFT. They’ve paid a lot of money for the ownership of the “receipt” of that image, essentially a series of numbers, paid for in an enigmatic cryptocurrency, that is hosted on a virtual blockchain. Makes sense? No? Think of it as a digital certificate of ownership and authenticity for a given asset. It’s still confusing, isn’t it?
Regardless, consumers are already bought into the concept. More than $40bn was spent on NFTs in 2021 alone, according to blockchain data provider Chainalysis. For some, NFTs are the latest in a long line of Ponzi schemes, designed to make the rich get richer. For others, they are touted as a means to empower artists and give consumers confidence in their purchases in a democratised economy.
Some businesses have moved quickly into this market, perhaps without consideration of the reputational harm it could cause.
Critics have claimed that Nike could “erase their progression towards being a more sustainable company” after the sports brand entered the NFT market last year. Elsewhere, GAP has launched NFTs in the form of a series of digital hoodie art, with various different price points.
This latter decision has been described as a cash grab by some, with Amal Jomaa, head of fashion at So Real Digital Twins AG stating on LinkedIn that NFTs should instead “start with the customer and revolve around the type of shared values and interests that attract people to the brand in the first place”.
Whatever side of the fence you sit on, NFTs have one glaring issue. While they’re designed to function and thrive in a virtual economy the impact they leave on our physical world is very real.
NFTs rely on mining functions across the blockchain, a process that is extremely energy intensive. A study from Cambridge University found that bitcoin mining currently consumers more electricity annually than the entire country of Argentina.
NFTs largely operate in online marketplaces that use the Ethereum cryptocurrency. Much like Bitcoin, Ethereum uses a “proof of work” system that enables ‘miners’ to solve computer puzzles to add a new ‘block’ to the transaction of the NFT being purchased. This data is stored on a decentralised ledger, aka the blockchain. Research suggests that Ethereum uses about as much electricity as the entire country of Libya.
Proponents of blockchain technology – which has ultimately proved extremely fruitful for businesses seeking to improve supply chain transparency – argue that emissions caused by crypto like Ethereum would have been generated by these miners anyway, in the same way, that not booking a flight doesn’t stop that flight from taking place and the emissions associated with it.
Green groups and the media are already casting a critical eye over the technology and how it is used.
At the start of the month, WWF UK announced that it had launched a new series of NFTs that focuses on endangered species. The charity notes that it is releasing its NFTs of these species on Polygon’s blockchain, which it claims is “eco-friendly”.
“Each transaction has the equivalent carbon emissions of a glass of tap water,” WWF UK said on Twitter.
The response to the announcement has been largely critical, with some stating “what an amazing way to reverse the cultural meaning of that panda logo in an instant”.
The charity is a firm believer that NFTs are no passing fad, but rather are “here to stay” and wants to promote sustainable usage. edie reached out to WWF UK for comment, but at the time of publication, they were yet to respond.
However, WWF UK has since pulled out of the new launch.
In a statement, the charity said: “We recognise that NFTs are a much-debated issue and we all have lots to learn about this new market, which is why we will now fully assess the impact of this trial and reflect on how we can best continue to innovate to engage our supporters.”
The backlash is an early warning for businesses seeking to tap into NFTs in a bid to grab a slice of an ever-growing, yet extremely volatile market. Already in the brief history of NFTs, we’ve seen numerous cancellations of new launches, many based on sustainability grounds.
So far, the consumer-facing companies dipping their toes into the NFT market have seemingly done so in a juxtaposition of their sustainability commitments.
But there are some companies working to transform the blockchain and crypto industry and align it with the low-carbon trajectory.
South Pole is one such organisation attempting to influence change. South Pole’s vision is to decarbonise the blockchain and crypto industry and “turn it into a force for good”.
Last year, the company partnered with the NEAR Foundation and Mintbase to launch “a climate-conscious NFT art auction”. The aim was to highlight to users and artists how NFTs and the digital world must address their environmental impact in order to align it with the net-zero movement.
The NEAR Foundation worked with South Pole to measure and offset the carbon footprint of all direct and indirect emissions associated with its blockchain. Proceeds from the sale and resale of the NFTs were also split 50/50 between the artist and South Pole’s certified climate projects, including clean energy projects in India.
South Pole’s head of digital innovation Wouter Crul is under no illusion that NFTs and crypto need to be extremely conscious of their energy and environmental impacts, but that blockchain technology will be appealing to organisations seeking access to more finance for their climate initiatives.
“When you talk about NFTs, I would also combine it with distributed ledger technologies and the potential that they can bring,” Crul tells edie. “We have a means to reduce the costs for monitoring and to democratise how climate-related projects are run. At South Pole, we preach to be cautious about the energy consumption side of this.
“There is a lot of money flowing in NFT’s, and there’s a lot of economy being generated there. It is a potentially successful way of raising more funds for climate action. I’m all for experimenting with it and identifying the right choices, so doing it on proof of stake, which is more energy efficient, and learning from that as to how you can help companies do it in the most efficient way. For the full transformational potential of distributed ledger technologies, we’re looking at how we can get a full system change on this, from project developers, to buyers and creditors and verification parties.”
Proof of what?
There is an acknowledgement from the industry that it needs to combat its energy-intensive ways. Many bitcoin miners are turning to renewables, with about 39% of these mining activities covered by renewables sources. Like many corporations, others are turning to carbon offsetting, a practice that raises its own concerns and criticisms.
Take the Polygon platform being used to host WWF UK’s NFT collection. In its own words, Polygon, like NEAR’s, “relies on participants known as validators to verify transactions by pledging tokens as collateral”, known as Proof of Stake. Polygon claims that this approach to mining cuts energy usage by more than 99%. The Polygon platform also offers users the chance to enrol in carbon offsetting schemes through partnerships with initiatives such as One Tree Planted.
Elsewhere, CurrencyWorks is using waste oil to create energy for crypto-mining. The organisation is notably powering the distribution of the Zero Contact movie, starring Anthony Hopkins, that is marketed for release as “zero-carbon” NFT.
Sustainability is a fledgling movement in the crypto sector, but as the movement grows, so too do accusations of greenwashing. Indeed, some critics, including Catherine Flick, of the Centre for Computing and Social Responsibility at De Montfort University, claim that environmentally conscious NFT implementations cannot yet be considered “trustworthy”.
Yet there is an undeniable sense that accessing new markets via these distributed ledger technologies is the direction of travel. As such, there is scope for those entering and operating in this new frontier to shape the agenda around the importance of sustainability and action.
According to Grand View Research, the global blockchain market will be worth $1,431.54bn by 2030. As such, it is crucial that this part of the economy is in alignment with the net-zero movement.
While some companies like Eco-Age, the pioneers behind the Green Carpet Challenge, are attempting to launch an “Eco-Verse” to sit inside this growing Metaverse, others believe that the blockchain platforms that NFTs rely on can transform how finance is funnelled into climate projects.
Eco-Age’s creative director Livia Firth says: “This epoch promises plenty of disruption. But whether or not this is welcome depends on how we steer a course through change. It is a question of making decisions predicated on social justice and ethics, and at Eco-Age we strongly believe we should be the designers, the architects and the instigators of this new technological revolution.
“Today. we finally have strong frameworks in the ‘physical world’ such as the 17 Sustainable Development Goals or reporting frameworks such as the SASB and GRI and this new technological revolution is not exempt from governance – although currently no one is talking about it or even thinking about it. And we have decided to roll up our sleeves and once again lead on the conversation”.
Enterprise Non-Fungible Tokens (ENFT) have also emerged, for example, acting as digital tokens to improve the transparency of supply chain, manufacturing and other industries. Transport giant Jaguar Land Rover (JLR) has recently trialled blockchain technology to trace the carbon impacts of its leather supply chain, as part of its overarching net-zero commitment.
Crul notes that one additional value of this transparency is providing better data for the carbon markets, which in turn could address the aforementioned issues surrounding offsets.
“We would be able to get better transparency about the real work that’s going on in climate and offsetting projects by adding that to the information of the on-chain carbon credit,” Crul adds. “We would even be able to add additional benefits to those credits if they emerge over time. We could substantiate the value of these credits and update them in a better way, and we’ll be able to add other kinds of attributes to it which could be related to biodiversity or other impacts that are being made.”
“I think the main call to action is that we need to use this technology to support initiatives that create greater transparency about the footprints of these technologies and how it can be reduced, and the benefits that this technology can bring.”
Whether NFTs are just another “boom and bust” market remains to be seen. Currently, NFTs are currently operating like any other sector. The vast majority of the focus is on profits, even if it is disguised as a newfound sense of value. But there are some operating within this growing trend that believe the technology that NFTs rely on can revolutionise the low-carbon movement.
For now, brands must be wary. Amidst the vast energy usage and swirling reputational issues associated with NFTs, exploration is key and brands can expect to be called out if they enter this area in the pursuit of profits, rather than trying to leverage finance toward climate projects.
© Faversham House Ltd 2023 edie news articles may be copied or forwarded for individual use only. No other reproduction or distribution is permitted without prior written consent.