Bernard O'Shea: What are NFTs and why are they bad for the environment?

Fancy spending your money on some digital real estate? Then an NFT could be the non-fungible fun option for you, writes Bernard O'Shea

Bernard O'Shea. Photograph Moya Nolan

Imagine overhearing this conversation between three people in the pub.

"Well, we have just bought a holiday home in Portugal we decided to treat ourselves."

"Oh, really, that's nice. I decided not to travel this year, so I bought a new car."

"Sure, that's nothing. I just bought the original Teresa Mannion 'Don't make unnecessary journeys' gif."

Fancy spending your money on some digital real estate? Then an NFT could be the non-fungible fun option for you. What is an NFT? It stands for Non-Fungible Token. They are primarily digital assets like videos, tweets, images, music and gifs that can be bought and sold online. "Non Fungible" means that it's unique and non-interchangeable. For instance, The Statue of David is a unique piece of art. There are several thousand replications, but there is an original statue created by Michelango.

It cannot be traded like a unit of currency or a "like for like" commodity. One 1 oz gold coin is of equal value to another 1 oz gold coin. Similarly, one bitcoin is comparable to another bitcoin. However, Michelangelo's David is not equal to another David because there isn't another one.

Yet you can see the statue online any time you want. This is the vital part; The Accademia Gallery of Florence can prove that Michelangelo was the creator and that they own it. This is what gives it value. Similarly, the token element of an NFT is proof of digital ownership. It's the DNA of a piece of digital art or product that you buy online. It contains information on who owns the asset, who sold it when it was sold.

The information for most NFTs is stored on the blockchain Ethereum. Euromoney.com explains a blockchain as: "A system of recording information in a way that makes it difficult or impossible to change, hack or cheat the system. A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain".

Everyone on the chain will know if you own a block like an NFT. If someone tries to create a new one or tamper with an existing one again, the chain will know. Thus instead of a central bank or an agent regulating the transactions, everyone governs everyone else.

Some of the most well-known examples of NFTs that have been sold are the Nyan Cat. Half Cat Half rainbow pop tart. It went viral in 2011, and it was bought for $600,000. The digital artist Mike Winkelmann aka "Beeple", recently sold his work "opus" at Christie's Auction House for $69,346,250. These are examples of digital art, but the NFT concept has spread its cyber wings.

More recently, sporting organisations like the National Basketball Association in the USA has monetised specific moments called "Top Shots". You can buy digital tokens for various videos of iconic moments from the NBA.

It reminds me of swapping Italia 90 stickers in the playground. To this day, I still remember the Romanian Flag being worth a hundred stickers. It was rare, and rumours persisted that there was only one of them in existence in Laois. Now move that playground online. People buy digital basketball moments from thirty dollars to LeBron James' "Cosmic" Dunk purchased for $208,000.

The music industry is also embracing the NFT phenomenon. Initially, DJ's in the dance music scene utilised NFTs to add value to their output. Recently The Kings Of Leon "dropped" 3 NTFs as part of their new album When you see yourself. According to Samantha Hissong of Rolling Stone Magazine: "One type is a special album package, while a second type offers live show perks like front-row seats for life, and a third type is just for exclusive audiovisual art."

But one of the highest-profile and most debated NFT transactions was the purchase by a Malaysian-based businessman of the first-ever tweet by Jack Dorsey's one of the founders of Twitter, for 2.9 million dollars.

When I told one of my friends this recently, his reaction was insightful. "The super-rich have run out of things to buy." This is probably true. Not content with owning physical goods, they are now delving into buying artefacts in the online world. But I think there's another phenomenon happening around NFTs.

What if you could buy Irish Examiner Digital Masthead. Even though thousands of other people can look at that exact same image any time they want. What if you felt like owning the DNA of it. If you thought the origin of the image itself was where the value lay? In some small way, that goes to describe a possible reason people want to buy NFTs. If you read a particular newspaper every day, you might feel an emotional or intellectual connection to it. You also have what's called the "digital bragging rights" to it. Now think of Twitter.

Twitter, for good or bad, has had a profound effect on the world. It's impossible to buy the first-ever brush stroke or fingerprint with artistic intent made by a human hand. However, it's possible to purchase the first-ever tweet.

Economists generally feel that the NTF craze is a bit of an economic football about to burst but not entirely. Still, enough so that you wouldn't be able to use it for a game of five aside. Primarily because the digital token's value is really only worth what someone else will pay for it. That's a risky investment. But there is a far greater threat posed by NTFs and blockchains.

The energy used by the servers generating all the digital transactions uses up an immense amount of power due to the "proof of work" factor. Hence millions of computers are running around the world 24/7. It is estimated that "a single Ethereum transaction consumes as much electricity as an average US household uses in a workweek—and has a carbon footprint equivalent to 140,893 Visa credit card transactions or 10,595 hours of watching YouTube.

There are several ideas on how to bring down the carbon footprint of blockchains down. But until there is a definite answer, the debate remains can the planet can afford it? As Teresa Mannion said herself, "Don't make unnecessary journeys." With the weather being so changeable due to global warming, environmental experts warn that we possibly shouldn't be making unnecessary purchases.