NFTs and the Controversy they have Fostered

Tuesday, 1 June, 2021

NFTs (Non-Fungible Tokens) have erupted onto the screens and pages of world news this year. The sudden interest in these can be attributed, arguably, to an auction in March at Christie’s. It was here that the graphic artist Beeple, aka Mike Winkelmann, sold one of his works for the astronomical price of $69.3 million. The piece is called The First 5000 Days and comprises of 5,000 Instagram posts thrown together to make a digital collage. It has elicited a flurry of debate and put NFTs on the map. While there is the natural controversy over whether this constitutes “real art” or not, something that will be addressed in another article, the fact is that NFTs are nothing new and have already courted controversy since their inception. Those in favour argue that they help protect artists finances and allow them to exhibit, and sell, their work without having to travel and cause pollution. However, there has been much research into their environmental cost and how their intention to protect the works of creatives is shut off to those with wealth and previous recognition.

        The purpose of this article is to present both views so that any reader can reach a judgement for themselves. There is a vast amount of information on this subject and so an attempt will be made to condense it as much as possible, without diluting the information too much. Everyone is entitled to an opinion, and this includes myself. Through the evidence that will be given, on both sides of the argument, there should be sufficient information to show how I have reached the conclusion that NFTs are a detrimental entity for the world in which we live. They fail to protect artists and their environmental cost is far too much to be assuaged by any “offsetting.” Any reader may come to a different conclusion, but what should become apparent is that NFTs are not going anywhere soon, and so neither will the controversy that surrounds them.

It is important to establish just what NFTs are. Many, such as myself, were baffled by this concept when the news storm made its splash earlier this year. They are non-fungible (non-exchangeable) digital tokens that hold images, videos, music and other such things. Each is held on a blockchain network, which is a secure cloud store for financial assets. Bitcoin and Ethereum, the two goliaths of cryptocurrency, utilise blockchains. The idea behind NFTs is that because they are non-fungible, only one can exist. It is impossible to duplicate and thus only one person, or party, can have ownership of the digital file. A good way to simplify this is to state that while most people can own an Andy Warhol print, there is only one original that can be purchased and owned.

        What this all comes down to is the issue of provenance. It is a word that is bounced around the art industry, and with justification. It is essentially the issue of ownership and authenticity. Some pieces are worth more due to the name attached to it and it is vital to trace the journey of the work from its inception to the present day. Any irregularities can result in massive losses. Valuations from esteemed experts can be duped by expert forgery and it is a constant problem that warrants the necessity of establishing the provenance of the artwork. There is also the point to be made that cryptocurrencies, which NFTs use, provide another bonus in the way in which their provenance is constructed. Whereas establishing a route from source to acquisition for raw materials, such as diamonds, can be extremely murky territory, the use of blockchains facilitates the ability to browse a chain of provenance that other valuable commodities lack. It could be argued then that NFTs are a more ethical way of purchasing for the aesthete than gold, platinum or diamonds.

        As such there are those who deem NFTs to be a welcome addition to the industry. By having a secure, digital paper trail that can link the artist to the buyer they hope to end the sordid business of forgery and exploitation of the artist. In order to achieve such security, however, results in a lot of energy. As well as running the servers to maintain the artwork, there is also the matter of maintaining the cryptocurrency with which to purchase it; NFTs cannot be bought with physical money. Proof of Work (PoW) coins demand that increasingly complex, and energy consumptive puzzles, need to be solved by computers to ensure future coins are harder to produce.

        But the returns, it is argued, are justified. The art industry has never been known for its green initiatives. Artworks, their creators, and prospective buyers often travel globally via aeroplanes which emit large quantities of CO2 emissions. Therefore online artwork and transactions of purchase can be undertaken from the comfort of one’s home. There is also the added bonus of conducting transaction between artist and consumer. Richard Smith, the chief executive of the non-profit search organisation Foundation for the Study of Cycles, commented for The Times, “Through NFTs artists can exchange values with their fans directly.” He was referring to the music industry in this case and the fact that the rock band Kings of Leon released their album When You See For Yourself in March 2021 as an NFT. The Coronavirus pandemic has inflicted misery upon billions and is unprecedented in its resulting encroachment upon civil liberties (albeit justifiably). The artworld has been one of the many casualties of this. It is no secret that musicians have to rely upon touring in order to make ends meet, due to the pitiful revenue they receive from downloads and streaming. As such, the idea of a technology that bypasses these avenues and puts money into the artist’s pocket has led to a championing of NFTs as a way forward in the music industry.

        It should be addressed that even those who hail NFTs are aware of the environmental implication they ferment. Beeple himself has stated that he wants to move forward to a carbon neutral future and “offset” any emissions that his artwork creates. By his own estimates it will cost around $5,000 to “offset” the CO2 output for one of his works. In Iceland and Norway, where nearly 100% of all energy production is renewable, cryptocurrency miners are taking advantage of cheap hydro-electric energy to power their servers. Coupled with this, the low temperatures of these countries can help reduce costs by cooling the computer infrastructure naturally. While the cost of running an NFT is, in itself, great in its scale of energy, the common denominator comes down to the cryptocurrency which facilitates its future. More servers mean more energy. But Ria Bhutoria, director of research at Fidelity Digital Assets, told Lauren Aratani at The Guardian that “Bitcoin would not be able to fulfil its role as a secure, global value transfer and storage system without being costly to maintain.” It is a sentiment echoed by the investor Tyler Winklevoss who took to Twitter to state that, “Computers and Smartphones have much larger carbon footprints than typewriters and telegraphs. Sometimes a technology is so revolutionary and important for humanity that society accepts the tradeoffs {sic}.”

         Essentially both Bhutoria and Winklevoss have an argument that can be summarised as that the ends justify the means. It is a sentiment that was shared by the British imperialists of the 18th and 19th century. The bloodshed, the man-made famines, the repression of culture and the looting were worth it for bringing civilisation to the “darkest” areas of the world. Rudyard Kipling summed up such an ideology in his poem The White Man’s Burden.

        This could be construed as hyperbolic, but such arguments are indeed reminiscent of these historical thoughts that are entitled to evisceration and the dustbin of history. The artworld is, without doubt, hardly green. Yet should it subject itself to being even less environmentally friendly? Readers may have noticed that I have always put the word “offset” or “offsetting” in quotation marks. This is because there is empirical evidence to come to the conclusion that this is a fallacy.  Would one chop down an acre of jungle in the Amazon and then replant the same amount in Sumatra? They could, but they would be condemned for doing so. In 2010 Curtis Silver wrote an article for The Wired about this practice. He describes the Carbon “offset” industry as just that: an industry. Where those willing to do good will pay extra to corporations that have, self-professed, green initiatives. To quote:

“At one point you may have actually been paying for someone to plant a tree in your name, or a whole grove of trees. Now, it’s more likely that they are either doing that and just pocketing your money or doing nothing at all.”

Does he have an agenda as a writer? Yes. Does he also have agency as a writer? Yes. The most important thing to consider here is that investors do not always know where their money is going. You have agency over your own income and thus can invest in companies that have green initiatives. You cannot, by inherent principle, know where that money is going. It is this factor that make NFTs so murky, at least on an environmental front. Those who profit from them are happy to say to the press, just like so many others, that they will “offset” any emissions they may create through their craft.

        Yet by saying that you will “offset” you inherently admit that what you are doing is wrong. Therefore it is imperative to delve into the recesses of the counter arguments against NFTs and their environmental impact. Writing for The Verge, Justine Calma has highlighted one NFT in particular over this issue. She writes that Space Cat, an NFT that is essentially a GIF, has a carbon footprint that is equivalent to an EU resident’s electricity usage for two months. Such claims are not without merit as they are corroborated by the Cambridge Centre for Alternative Finance. Their data is readily available for all to see and they make for rather startling reading. One study has shown that the amount of electricity used annually by the bitcoin network could satisfy the energy needs of the University of Cambridge for 703 years. Another finding has proven that a single transaction of bitcoin has the same carbon footprint as 51,210 hours of watching YouTube content. In essence, the choice is between years of scholarship that betters humanity and countless hours of looking at people degrading themselves, or one mildly amusing image of a cat.

        NFTs, and the blockchains they utilise, are on course to become too big for any possible “offsetting.” In order to maintain them, more complex puzzles are required to ensure security and profit. Users, or “miners,” add a new block of verified transactions to a decentralised ledger which is the blockchain itself. Such a practice ensures the provenance of any piece, but it does mean that the whole process is incredibly inefficient. The term “mining” refers to the process in which a bitcoin is awarded to a computer that solves an intricate series of algorithms. As more and more transactions are conducted, the more complex each maths problem becomes and so more energy is needed to power the servers.

        NFTs and their practices are more widely known now than ever before, but the controversy around their environmental costs has been around since the beginning. One of the pioneers of cryptocurrency, Hal Finney, tweeted about the potential damage they could impose way back in January 2009. Indeed, Charles Hoskinson, CEO of the cryptography firm IOHK, told The Independent this year that:

“Bitcoin’s carbon footprint will get exponentially worse because the more its price rises, the more competition there is for the currency and thus the more energy it consumes.”

As such Hoskinson has affirmed the foreboding that Finney declared 12 years ago. NFTs and the cryptocurrencies they rely on seem destined to become too large an entity to be controlled and thus have any hope of achieving sustainability.

        While the argument has been shown that places such as Iceland can use more renewable energy, Aratani has argued that it is more tempting for “miners” to go wherever electricity is cheapest. That means places like China, and that means coal. This is because in China over two thirds of power is generated by coal. We could become optimistic that the hearts of those in this industry can strive for the future, or at least be forced into it. Yet what makes cryptocurrencies so attractive to many is that they are an unregulated entity. There are no checks or balances that can ascertain whether “miners” are using renewable energies or not and so it echoes the sentiment that we, as the consumer, have no idea of how such practices are facilitated. There may be a digital paper trail to show that the artwork is authentic, thus proving legal prevenance, but the way in which such a chain is maintained is anyone’s guess.

        A lot of the evidence thus far has tackled the issues of the cryptocurrencies that facilitate NFTs, such as PoW coins. But there has been a movement to replace these energy consuming means with Proof of Stake (PoS). This process, as to my understanding, means a switch to the blockchains algorithm. It would ensure that the digital ledger is secured through users “staking” their own cryptocurrency tokens and thus eliminating excess energy on “mining” for further tokens. It is a concept that the second largest cryptocurrency, Ethereum, has pledged to invest in. The problem, however, is that Ethereum has been promising to make the switch from PoW to PoS for years now. It has become something of a running joke to the many writers following this issue. There is also the problem that, as Calman has highlighted, in order to make such a transition feasible would be for Ethereum to convince everyone that PoS is the way to go, otherwise the whole operation would collapse. Either the market operates on PoW or it operates on PoS, there is no middle ground.

        Utilising the concept of PoS is therefore an attractive, although increasingly inconceivable, option. However, the use of it would undermine the very argument that the champions of NFTs claim justify the means, that of protecting the artists. Everest Pipkin, a digital artist himself, has written an article that delves into this issue, and so many others. Entitled, HERE IS THE ARTICLE YOU CAN SEND TO PEOPLE WHEN THEY SAY “BUT THE ENVIRONMENTAL ISSUES WITH CRYPTOART WILL BE SOLVED SOON RIGHT?” He has some strong words and opinions to vent. Now there is an agenda to this piece, the very title warrants scrutinising. Yet his arguments are predicated upon existing sources and, after researching them myself, he has come to a conclusion that has been formulated through in-depth research. He points to the fact that PoS benefits those who are already tapped into the market. Under such conditions artists would have to pay upfront, and non-refundable, “gas fees” in order to “offset” any emissions their works would make. Those not established enough could see their work on the network, and thus using energy, without being sold. In Pipkin’s view the whole operation works just as a pyramid scheme does, in that those higher up make more money from those investing beneath them. What he also argues is that once an NFT is sold to a buyer it then becomes the property of that party and can be sold on individually. You may cry dear reader “but that is the way! It is always the way!” Indeed you are right to make such proclamations. Yet because NFTs and the cryptocurrencies they depend upon are unregulated there is no guarantee that they respect copyright. Imagine One Direction releasing a song called We May Get Fooled Again with the same music, but slightly altered lyrics from the Who’s classic? There would be total uproar, and rightly so.

        This maybe a somewhat extreme example but there have been instances of digital artists finding their work up for sale, and with their name attached, on third party websites that can profit upon their work without having to pay the creator a penny. Perhaps the most damning indictment comes from Anil Dash, the CEO of Glitch. He was one of the first people to prototype the technology that would become NFTs. Writing for The Atlantic he stated:

“The idea behind NFTs was, and is, profound. Technology should be enabling artists to exercise control over their work, to more easily sell it, to strongly protect against others appropriating it without permission.”

Yet now, this year, he has written that the creators have been left at “the mercy of companies far more powerful, and far less accountable.” Essentially Dash is agreeing with Pipkin. Those more established within the sphere of influence can profit while the creative minds that have facilitated the artwork are left to rot. Is this something new within the artworld? No. Do we need another form of exploitation? Absolutely not. One of the main arguments in favour of NFTs is that they protect the artists. Through establishing a chain of provenance and through allowing artists to sell directly to consumers they maintain that this new technology helps the creative. Yet the evidence conclusively shows that those who wish to break into the market are left wanting. Beeple already made a name for himself within the NFT world before his astronomical sale. The digital artist Grimes also had the backing of the music industry and her fans before making millions from NFTs.

        The fact is that PoS does exactly what it says on the tin. It rewards those already with a stake in the market. A switch to PoS over PoW maybe, albeit slightly, more eco-friendly but it undermines the whole principle of why NFTs were meant to be a force for good, to protect the creator. When eradicating the underlining principle of NFTs as an entity to nurture, and help shield, artists all that is left are the environmental costs.

NFTs are here to stay. Some may say that it is a fad that will pass just as flared trousers did, but they have been around longer than the recent media exposure has given them. As with anything controversial there are opposing sentiments as to how they operate. There are arguments to suggest that in the future this practice will become more sustainable. Major artists, that have benefitted from the vast wealth potentially afforded, have committed to “offsetting” any environmental costs through charitable donation. There is the opportunity to use sustainable means to run the energy consuming servers that facilitate it. Then there is also the argument that, due to its protection of the creators and the potential economic boom it could create, the ends justify the means. I am sure that there are some out there who have taken the time to read this article, to which I give my thanks, and agree with these ideas.

        However, I am not one of those people. Due to the research undertaken to assemble this article, it is unfeasible to make the claim that NFTs are a positive force for the world. The argument in favour of them has inherently acknowledged the damage they do to our planet. The whole idea of “offsetting” shows an understanding of the harm that they do. There is evidence to prove that “offsetting” is a fallacy in itself but there is a further ethical argument to be made. If humanity knows that something they have created will contribute to, our already vast track record of, destruction then why should we do it? Yes smartphones are more unsustainable than typewriters, as Winklevoss said, but they are here now and there is no going back. We have a chance to nip this in the bud now before it becomes too big to fail. Instead of “offsetting” just do not do the thing that causes emissions in the first place. When typing this in black and white it seems so obvious, but the amount of money wrapped up in this sordid venture will always dilute the minds of those desiring profits. This article will mean nothing in the grand scheme of things. It will not change the world and it will not contribute to the already vast debate that has enraptured NFTs. But if it gets just one reader to research and delve deeper into this issue, then the author will deem it a success.

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