Non-fungible tokens (NFTs) are a new booming type of assets. They are based on the same technology underlying cryptocurrencies: blockchain. A single NFT might be defined as a “smart contract” whereby the subscriber is a physical person, claiming the property of an asset’s fraction. NFTs might be used by artists, painters, musicians to sell the property of their ideas, or their innovative works. NFTs are exchangeable for real money, digital currencies or other NFTs, which makes their innovability to be in place. Each smart contract is not interchangeable: a single owner can claim the property of that specific contract. Also, we cannot split that single NFT into many, as you could have changed a 50 quid note with two twenty and two five other notes: that’s the explanation for the “non-fungible” part of the acronym. [1].
NFTs are – most of times – sold online. They are often been traded through cryptocurrencies, of which they share the underlynig technology (blockchain). Over the last few years, Gamers growing demand for Cryptokitties in the Americas has led to a price spike of a single NFT worth 120,000 USD as a record price back in 2017: very impressive for a game whose users’ main purpose is to breed and grow a cat. [2] Isn’t it not worthier to save a real cat and possibly accueilling it in family with the highest degree of affection, is it? I leave it to readers’ own taste.
Coming to 2022, the NFTs “hype” is not over yet, despite some analysts have soundly claimed that the NFTs’ bubble is about to burst [3] with some others are insistently stating that NFT crash will be next to the crypto crash [4] But the underlying weaknesses that feature non-fungible tokens have come along with the toughest consequences to bear. NFTs and Cryptocurrencies are not the same thing. But being so tied up together, they share two downsides in common worthy to delve into.
The first matter is whether digital assets and digital currencies are energy-intensive or if they can bring about technological innovation to address climate change. There are many ways in which technology can bring about its latest developments to mitigate climate change. Some solutions come from the aerospace industry [5], some others from the financial one [6]. However, we cannot expect much development from an energy-intensive digital good such as NFTs as much we couldn’t from cryptos. So, the main matter on NFTs is that they aren’t innovative digital consumer staples but simply digital consumer goods. Suchconsumption, together with massive digital currencies mining and exchanges’ data processing alltogether is only nurturing CO2 instead of phaseing it out – what ESG analysts might consider as “Scope 3 emissions” [6]. In a moment when millennials are experiencing the toughest consequences of climate change, what happens when we ask ourselves whether are NFTs sustainable? The answer is a “dry” no. Scientists have already made their point on this by giving a very real-life example [7]:
“If you watched 20,000 hours of YouTube, you would generate less CO2 than if you bought or sold an NFT once. That single transaction would require the same amount of energy as your average UK household uses in two weeks.”
The further matter is volatility. There is nothing we can do to preempt digital currencies’ volatility – as we showed [8]. Volatility drives assets to be marketed at ups and downs every day. It doesn’t give durability to goods real price, nor does it prevent inflationary pressures over them. Not adding energy intensity to the picture would thus be an outrageous mistake. Now, economists have recently estimated that “brown assets” are more likely to be a bubble [9]. If there is substantial proof of NFTs and digital currencies “browness”, there is a concluding syllogism to be made: first, NFTs and digital currencies can be thought as brown assets, second, brown assets could be more likely to be a bubble and so – finally – NFTs and digital currencies are likely to be a bubble [10].
Sources:
[1] Simplelearn (2021) “NFT Explained In 5 Minutes | What Is NFT? - Non Fungible Token | NFT Crypto Explained | Simplilearn”. URL: https://www.youtube.com/watch?v=NNQLJcJEzv0&ab_channel=Simplilearn
[2] Cnbc.com (2017) “Meet cryptokitties: the new digital beanie babies selling for 100k”. URL: https://www.cnbc.com/2017/12/06/meet-cryptokitties-the-new-digital-beanie-babies-selling-for-100k.html
[3] Dunn W. (2021) “Why NFTs are not new way to make money”. NewStatesman.com URL: https://www.newstatesman.com/business/finance/2021/03/why-nfts-are-not-new-way-make-money
[4] TheBusinessTimes.com (2021) “Cryptos are crashing will nfts be next?”. URL: https://www.businesstimes.com.sg/banking-finance/cryptos-are-crashing-will-nfts-be-next
[5] European Space Agency (2010) “Space technology helps mitigate climate change”. URL: https://www.esa.int/Applications/Technology_Transfer/Space_technology_helps_mitigate_climate_change#:~:text=Satellite%2Dbased%20systems%20are%20reducing,cells%20to%20produce%20more%20energy
[6] Morgan Stanley (2017) “Ideas – using technology for climate change mitigation”. URL: https://www.morganstanley.com/ideas/using-technology-for-climate-change-mitigation
[7] Wired.com (2021) “Nfts are hot. So is their effect on Earth’s climate”. URL: https://www.wired.com/story/nfts-hot-effect-earth-climate/
[8] Hughes A. (2021) “Can Nfts solve their massive carbon footprint problem?” Sciencefocus.com. URL: https://www.sciencefocus.com/future-technology/can-nfts-solve-their-massive-carbon-footprint-problem/
[9] Morello M. (2022) “Inside bitcoins unsustainable matters” Csrnatives Blog. URL: https://www.csrnatives.net/post/inside-bitcoins-unsustainable-matters
[10] Jondeau E., Mojon B., Monnet C. (2021) “Brown assets might be the next subprime” Voxeu.org. URL: https://voxeu.org/article/brown-assets-might-be-next-subprime#:~:text=The%20brownest%20assets%20(Figure%201,even%20the%20first%20mortgage%20instalment