The overwhelming hype surrounding non-fungible tokens (NFTs) exploded into a hyperbolic curve after auction house Christie's sold an NFT collage dubbed "Everydays: The First 5000 Days" by artist Mike Winkelmann (also known as Beeple) for $69.3 million.
Later, the inventor of the World Wide Web Tim Berners-Lee, the co-founder of Wikipedia Jimmy Wales, and others joined the hype train by issuing digitized versions of physical objects. Demand for NFTs made a whole new space with trading and lending platforms like OpenSea, SuperRare and others.
And yet, not all treat well to the technology. On the contrary, many industries — far from blockchain and cryptocurrencies — protest against it. This issue is most acute in the gaming industry, where companies are trying to integrate NFTs into their products.
For example, Ubisoft is actively trying to convince the gaming community of the usefulness of tokens, but the gaming community and the company’s employees don’t think so. They believe that businesses are simply “trying to sell you snake oil.”
However, skepticism is not limited to the gaming industry alone. For example, the Associated Press also abandoned plans for NFT. Moreover, the British division of WWF refused to issue NFTs as well due to criticism from users that the market was not environmentally friendly.
In most cases, the main issue with NFTs is that they are not environmentally friendly. The thing is that NFTs are essentially records of transactions in the blockchain. Most tokens are traded through the Ethereum network, which uses a Proof-of-Work (PoW) transaction verification algorithm. This means that crypto miners (with ASICs and GPUs) are responsible for confirming that the state of the network is safe.
But how to calculate the damage NFTs cause to the environment? One should first look at how much electricity one or the other blockchain network consumes at a certain time, break this data into the number of transactions, and then into the share that falls on those related to NFTs. Kind of hard. The thing is becoming harder as blockchain changes its statistics dynamically. However, as Digiconomist found out, the carbon footprint of Ethereum might indeed be far from environmentally friendly. For example, as of December 2021, a single transaction generated 102.38 kilograms of CO2. This is reportedly equivalent to the carbon footprint of 226,910 VISA transactions or 17,063 hours of watching YouTube.
Does this argument apply to all blockchain networks? Not really. Not all blockchains use PoW. For example, other blockchains use Proof-of-Stake (Cardano, Avalanche, etc) and even Proof-of-Space (Chive). But why not issue NFTs on them then? Maybe it's all about the developer community. The Ethereum network has been around the longest after Bitcoin. It has a whole ecosystem of development tools that can't be said about other networks. Therefore, it is much easier for businesses far from the blockchain market to use time-tested and relatively simple solutions for Ethereum rather than on other blockchains.
However, the sale of digital collectibles is not always for the sake of hype. It appears that it is a utility that might play a significant role in how the community reacts to NFTs. For example, AssangeDAO, a collective of cypherpunks, in collaboration with an artist known as Pak raised approximately $54 million in an NFT sale to help in fighting for the liberation of Julian Assange.
Gary Vaynerchuk's NFT restaurant Flyfish Club sold out all NFTs for a total sum of $26.5 million in the form of membership tickets. And it doesn't seem like these initiatives are attracting as much negativity as regular NFT sales are.
Nevertheless, hostility against NFTs indirectly affected trading activity as not everyone on the market is trying to come up with new use cases.
The chart above shows that the 7-day average trading volume on OpenSea dropped by more than 30% from $210 million to $141 million, according to data from IntoTheBlock. And it seems that until the community comes up with unique use cases for NFTs, people will continue to treat the market of digital collectibles with fundamentally different views.