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update NFT page #7083

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Expand Up @@ -20,7 +20,7 @@ If Andy Warhol had been born in the late 90s, he probably would have minted Camp

## What's an NFT? {#what-are-nfts}

NFTs are tokens that we can use to represent ownership of unique items. They let us tokenise things like art, collectibles, even real estate. They can only have one official owner at a time and they're secured by the Ethereum blockchain – no one can modify the record of ownership or copy/paste a new NFT into existence.
NFTs are tokens that we can use to represent ownership of unique items. They let us tokenize things like art, collectibles, even real estate. Ownership of an asset is secured by the Ethereum blockchain – no one can modify the record of ownership or copy/paste a new NFT into existence.

NFT stands for non-fungible token. Non-fungible is an economic term that you could use to describe things like your furniture, a song file, or your computer. These things are not interchangeable for other items because they have unique properties.

Expand Down Expand Up @@ -96,7 +96,7 @@ NFTs are different from ERC-20 tokens, such as DAI or LINK, in that each individ
- Signatures
- Lots and lots more options to get creative with!

An NFT can only have one owner at a time. Ownership is managed through the uniqueID and metadata that no other token can replicate. NFTs are minted through smart contracts that assign ownership and manage the transferability of the NFT's. When someone creates or mints an NFT, they execute code stored in smart contracts that conform to different standards, such as ERC-721. This information is added to the blockchain where the NFT is being managed. The minting process, from a high level, has the following steps that it goes through:
Ownership of NFTs is managed through the uniqueID and metadata that no other token can replicate. NFTs are minted through smart contracts that assign ownership and manage the transferability of the NFT's. When someone creates or mints an NFT, they execute code stored in smart contracts that conform to different standards, such as ERC-721. This information is added to the blockchain where the NFT is being managed. The minting process, from a high level, has the following steps that it goes through:
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- Creating a new block
- Validating information
Expand Down Expand Up @@ -291,11 +291,10 @@ NFTs are growing in popularity which means they're also coming under increased s

To clarify a few things:

- NFTs aren't directly increasing the carbon footprint of Ethereum.
- The way Ethereum keeps your funds and assets secure is currently energy-intensive but it's about to improve.
- Once improved, Ethereum's carbon footprint will be 99.95% better, making it more energy efficient than many existing industries.
- Creating and transferring NFTs are just Ethereum transactions - they have no direct impact on the energy expended by Ethereum, nor do they independently expend their own energy.
- Ethereum is a low-energy blockchain, meaning the environmental impact of creating, buying and transferring NFTs is very small.

To explain further we're going to have to get a little more technical so bear with us...
The next sections explain further with a little more technical detail...

### Don't blame it on the NFTs {#nft-qualities}

Expand All @@ -305,9 +304,9 @@ Decentralized meaning you and everyone else can verify you own something. All wi

Secure meaning no one can copy/paste your NFT or steal it.

These qualities of Ethereum makes digitally owning unique items and getting a fair price for your content possible. But it comes at a cost. Blockchains like Bitcoin and Ethereum are energy intensive right now because it takes a lot of energy to preserve these qualities. If it was easy to rewrite Ethereum's history to steal NFTs or cryptocurrency, the system collapses.
These qualities of Ethereum makes digitally owning unique items and getting a fair price for your content possible. Ethereum protects the assets using a decentralized consensus mechanism called ['proof-of-stake'](/developers/docs/consensus-mechanisms/pos). This is a low carbon consensus mechanism that is also considered more secure than the energy-intensive alternative, ['proof-of-work'](/developers/docs/consensus-mechanisms/pow). NFTs have been associated with high energy expenditure because Ethereum used to be secured using proof-of-work. This is no longer true.
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#### The work in minting your NFT {#minting-nfts}
#### Minting NFTs {#minting-nfts}

When you mint an NFT, a few things have to happen:

Expand All @@ -316,56 +315,16 @@ When you mint an NFT, a few things have to happen:
- The transactions that confirm the above need to be added to a block and "immortalised" on the chain.
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- The block needs to be confirmed by everyone in the network as "correct". This consensus removes the need for intermediaries because the network agrees that your NFT exists and belongs to you. And it's on chain so anyone can check it. This is one of the ways Ethereum helps NFT creators to maximise their earnings.
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All these tasks are done by miners. And they let the rest of the network know about your NFT and who owns it. This means mining needs to be sufficiently difficult, otherwise anyone could just claim that they own the NFT you just minted and fraudulently transfer ownership. There are lots of incentives in place to make sure miners are acting honestly.
All these tasks are done by block producers and validators. Block proposers add your NFT transaction to a block and broadcast it to the rest of the network. Validators check that the transaction is valid and then add it to their databases. There are lots of crypto-economic incentives in place to make sure validators are acting honestly. Otherwise, anyone could just claim that they own the NFT you just minted and fraudulently transfer ownership.

[More on mining](/developers/docs/consensus-mechanisms/pow/)
#### NFT security {#nft-security}

#### Securing your NFT with mining {#securing-nfts}
Ethereum's security comes from its proof-of-stake consensus mechanism - validators deposit 32 ETH into a contract that can be destroyed if they misbehave. The system is designed to strongly economically disincentivize malicious actions, making Ethereum effectively tamper-proof. This is what makes NFTs possible. Once the block containing your NFT transaction becomes finalized it would cost an attacker millions of ether to change it, and even then their success is not guaranteed because the Ethereum community could decide to fork their malicious actions away. Anyone running Ethereum software would immediately be able to detect dishonest tampering with an NFT and the bad actor would be economically penalized and ejected from the pool of validators to prevent it from happening.
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Mining difficulty comes from the fact that it takes a lot of computing power to create new blocks in the chain. Importantly, blocks are created consistently, not just when they're needed. They're created every 12 seconds or so.
Security issues relating to NFTs are most often related to phishing scams, smart contract vulnerabilities or user errors (such as inadvertently exposing private keys), making good wallet security critical for NFT owners.

This is important for making Ethereum tamper-proof, one of the qualities that makes NFTs possible. The more blocks the more secure the chain. If your NFT was created in block #600 and a hacker were to try and steal your NFT by modifying its data, the digital fingerprint of all subsequent blocks would change. That means anyone running Ethereum software would immediately be able to detect and prevent it from happening.

However this means that computing power needs to be used constantly. It also means that a block that contains 0 NFT transactions will still have roughly the same carbon footprint, because computing power will still be consumed to create it. Other non-NFT transactions will fill the blocks.

#### Blockchains are energy intensive, right now {#blockchains-intensive}

So yes, there is a carbon footprint associated with creating blocks by mining – and this is a problem for chains like Bitcoin too – but it's not directly the fault of NFTs.

A lot of mining uses renewable energy sources or untapped energy in remote locations. And there is the argument that the industries that NFTs and cryptocurrencies are disrupting have huge carbon footprints too. But just because existing industries are bad, doesn't mean we shouldn't strive to be better.

And we are. Ethereum is evolving to make using Ethereum (and by virtue, NFTs) more energy efficient. And that's always been the plan.

We're not here to defend the environmental footprint of mining, instead we want to explain how things are changing for the better.

### A greener future... {#a-greener-future}

For as long as Ethereum has been around, the energy-consumption of mining has been a huge focus area for developers and researchers. And the vision has always been to replace it as soon as possible. [More on Ethereum's vision](/upgrades/vision/)

This vision is being delivered right now.

#### A greener Ethereum {#greener-ethereum}

Ethereum is currently going through a series of upgrades that will replace mining with [staking](/staking/). This will remove computing power as a security mechanism, and reduce Ethereum's carbon footprint by ~99.95%<sup>[^1]</sup>. In this world, stakers commit funds instead of computing power to secure the network.

The energy-cost of Ethereum will become the cost of running a home computer multiplied by the number of nodes in the network. If there are 10,000 nodes in the network and the cost of running a home computer is roughly 525kWh per year. That's 5,250,000kWh<sup>[^1]</sup> per year for the entire network.

We can use this to compare the future of Ethereum to a global service like Visa. 100,000 Visa transactions uses 149kWh of energy<sup>[^2]</sup>. In proof-of-stake Ethereum, that same number of transactions would cost 17.4kWh of energy or ~11% of the total energy<sup>[^3]</sup>. That's without considering the many optimizations being worked on in parallel to the consensus layer and shard chains, like [rollups](/glossary/#rollups). It could be as little as 0.1666666667kWh of energy for 100,000 transactions.

Importantly this improves the energy efficiency while preserving Ethereum's decentralization and security. Many other blockchains out there might already use some form of staking, but they're secured by a select few stakers, not the thousands that Ethereum will have. The more decentralization, the more secure the system.

[More on energy estimates](#footnotes-and-sources)

_We’ve provided the basic comparison to Visa to baseline your understanding of proof-of-stake Ethereum energy consumption against a familiar name. However, in practice, it’s not really correct to compare based on number of transactions. Ethereum’s energy output is time-based. If Ethereum did more or less transactions from one minute to the next, the energy output would stay the same._

_It’s also important to remember that Ethereum does more than just financial transactions, it’s a platform for applications, so a fairer comparison might be to many companies/industries including Visa, AWS and more!_

#### Timelines {#timelines}

The process has already started. [The Beacon Chain](/upgrades/beacon-chain/), the first upgrade, shipped in December 2020. This provides the foundation for staking by allowing stakers to join the system. The next step relevant to energy efficiency is to merge the current chain, the one secured by miners, into the Beacon Chain where mining isn't needed. Timelines can't be exact at this stage, but it's estimated that this will happen sometime in 2022. This process is known as The Merge (formerly referred to as the docking). [More on The Merge](/upgrades/merge/).

<ButtonLink to="/upgrades/">
More on Ethereum upgrades
<ButtonLink to="/security/">
More on security
</ButtonLink>

## Build with NFTs {#build-with-nfts}
Expand All @@ -379,71 +338,5 @@ Most NFTs are built using a consistent standard known as [ERC-721](/developers/d
- [A beginner's guide to NFTs](https://linda.mirror.xyz/df649d61efb92c910464a4e74ae213c4cab150b9cbcc4b7fb6090fc77881a95d) – _Linda Xie, January 2020_
- [Everything you need to know about the metaverse](https://foundation.app/blog/enter-the-metaverse) – _Foundation team, foundation.app_
- [No, CryptoArtists Aren’t Harming the Planet](https://medium.com/superrare/no-cryptoartists-arent-harming-the-planet-43182f72fc61)
- [Ethereum's energy consumption](/energy_consumption)
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- [A country's worth of power, no more](https://blog.ethereum.org/2021/05/18/country-power-no-more/) – _Carl Beekhuizen, May 18 2021_

<Divider />

### Footnotes and sources {#footnotes-and-sources}

This explains how we arrived at our energy estimates above. These estimates apply to the network as a whole and are not just reserved for the process of creating, buying, or selling NFTs.

#### 1. 99.95% energy reduction from mining {#fn-1}

The 99.95% reduction in energy consumption from a system secured by mining to a system secured by staking is calculated using the following data sources:

- 44.49 TWh of annualized electrical energy is consumed by mining Ethereum - [Digiconomist](https://digiconomist.net/ethereum-energy-consumption)

- The average desktop computer, all that's needed to run proof-of-stake, uses 0.06kWh of energy per hour – [Silicon Valley power chart](https://www.siliconvalleypower.com/residents/save-energy/appliance-energy-use-chart) (Some estimates are a little higher at 0.15kWh)

At the time of writing, there are 140 592 validators from 16 405 unique addresses.
Of those, 87 897 validators are assumed to be staking from home.

It is assumed the average person staking from home uses a 100 watt desktop personal computer setup to run an average of 5.4 validator clients.

The 87 897 validators running from home gives us 16 300 users consuming ~1.64 megawatt of energy.

The rest of the validators are run by custodial stakers such as exchanges and staking services.
It can be assumed that they use 100w per 5.5 validators. This is a gross overestimation to be on the safe side.

In total, Ethereum on proof-of-stake therefore consumes something on the order of 2.62 megawatt, which is about the same as a small American town.

This is a reduction of at least 99.95% in total energy usage from the Digiconomist estimate of 44.94 TWh per year that the Ethereum miners currently consume.

#### 2. Visa energy consumption {#fn-2}

The cost of 100,000 Visa transactions is 149 kwH - [Bitcoin network average energy consumption per transaction compared to VISA network as of 2020, Statista](https://www.statista.com/statistics/881541/bitcoin-energy-consumption-transaction-comparison-visa/)

Year-ending September 2020 they processed 140,839,000,000 transactions – [Visa financials report Q4 2020](https://s1.q4cdn.com/050606653/files/doc_financials/2020/q4/Visa-Inc.-Q4-2020-Operational-Performance-Data.pdf)

#### 3. Energy usage for 100,000 transactions on a sharded proof-of-stake network {#fn-3}

It's estimated that scalability upgrades will allow the network to process between 25,000 and 100,000 transactions per second, with [100,000 as the theoretical maximum right now](https://ethereum-magicians.org/t/a-rollup-centric-ethereum-roadmap/4698).

[Vitalik Buterin on transactions per second potential with sharding](https://twitter.com/VitalikButerin/status/1312905884549300224)

At the bare minimum, sharding will allow 64 times the amount of transactions as today which sits at around 15 transactions. That's the amount of shard chains (extra data and capacity) being introduced. [More on shard chains](/upgrades/sharding/)

That means we can estimate how long it will take to process 100,000 transactions so we can compare it to the Visa example above.

- `15 * 64 = 960` transactions per second.
- `100,000 / 960 = 104.2` seconds to process 100,000 transactions.

In 104.2 seconds, the Ethereum network will use the following amount of energy:

`1.44kWh daily usage * 10,000 network nodes = 14,400kWh` per day.

There are 86,400 seconds in a day, so `14,400 / 86,400 = 0.1666666667kWh` per second.

If we multiply that by the amount of time it takes to process 100,000 transaction: `0.1666666667 * 104.2 = 17.3666666701 kWh`.

That is **11.6554809866%** of the energy consumed by the same amount of transactions on Visa.

And remember, this is based on the minimum amount of transactions that Ethereum will be able to handle per second. If Ethereum reaches its potential of 100,000 transactions per second, 100,000 transactions would consume 0.1666666667kWh.

To put it another way, if Visa handled 140,839,000,000 transactions at a cost of 149 kWh per 100,000 transactions that's 209,850,110 kWh energy consumed for the year.

Ethereum in a single year stands to consume 5,256,000 kWh. With a potential of 788,940,000,000 - 3,153,600,000,000 transactions processed in that time.

<InfoBanner emoji=":evergreen_tree:">
If you think these stats are incorrect or can be made more accurate, please raise an issue or PR. These are estimates by the ethereum.org team made using publicly accessible information and the planned Ethereum design. This doesn't represent an official promise from the Ethereum Foundation.
</InfoBanner>