As of May 2021, the main blockchain NTFs are based on, Ethereum, is bad for the environment. It will begin to be less so by early 2022, with impact being seen by 2023. It's not as bad as Bitcoin, thank goodness.
Put most simply, cryptocurrency is bad for the environment because energy is required in order create a new crypto asset (such as an NFT that references a piece of digital art). As I'm typing this, I'm using electricity to run my computer, to power my internet, and ultimately burning fossil fuels in the process of doing so. The same is true for the creation of crypto assets, just on a much larger scale.
As of April 2021, both the Bitcoin and Ethereum blockchains create new crypto assets through a digital protocol called **Proof of Work.** In a Proof of Work system, a computer must solve computational puzzles that expend real life energy. To make a new crypto asset, a “forger” or "miner" tasks their specialized computers to solve these puzzles, competing with one another until one computer solves the puzzle. A successful solution is somewhat rare and rewards the miner with the new crypto asset. The more a computer “works” (the more energy is expended) the more competitive it is. You can think of it as a lottery, with every kilowatt-hour a ticket. This process is called mining. The value of crypto assets and currency continuing to rise absolutely depends on ever more users joining the network, using coins, and competing to mine them.
As a result of this process, new crypto assets on the blockchain become exponentially more difficult to make, and this is wasteful. It requires value (the price of electricity) to be wasted in order to be made, and inherits all of that value in the making. [Link]
A Proof of Work system isn't the only protocol around for blockchains to use to create new crypto assets. The biggest alternative today is Proof of Stake, which instead of solving increasingly energy-intensive puzzles to enter the lottery of who gets to mint the next asset, uses "held stake" in a system, generally by assets already held in an existing crypto wallet.
The Ethereum blockchain has stated it will move toward this more environmentally friendly system by 2022. But as I write this in April 2021, the Ethereum network's annual energy consumption is hovering around 38.98 TWh, roughly equivalent to the entire yearly energy consumption of the country of New Zealand. [Link]
As of April 2021, there are some other blockchains outside of Ethereum that support also NFTs that use more efficient protocols like Proof of Stake, and therefore less terrible for the earth. Hooray!
Currently, the way assets are created on all blockchains, including those that use a Proof of Stake or alternative protocol to Proof of Work share a fundamental problem, described by artist Everest Pipkin:
"There is not a schema that doesn't reward those who already are wealthy, who already bought in, who already have excess capital or access to outsized computational power. Almost universally [these systems] grant power to the already powerful." [Link]
"Because [Proof of Work] assets ask the investors of tomorrow to buy in at ever increasing computational power, we have ended up with an excess of energy usage that contributes to the ecological devastation of climate change. But the exact same system with the outsized computational power removed is still one that rewards early adopters and those with existing wealth, all on the backs of people convinced that if they join today, maybe they too will get rich." [Link]
It's annoying for most people to convert traditional currency into cryptocurrency. So, some startups are trying to be one-stop-shops that let you use traditional $ to buy crypto assets. That is nice for users, but because of how crypto (and NFTs specifically) works, it makes hacking super problematic.
Because these places have become one-stop-shops, they've in some cases even tied the NFTs to their own sites. So, if the startup goes out of business (which most do), your "permanent," "decentralized" token actually is borked!
Anil Dash describes the phenomena in his article NFTs Weren’t Supposed to End Like This:
"...When someone buys an NFT, they’re not buying the actual digital artwork; they’re buying a link to it. And worse, they’re buying a link that, in many cases, lives on the website of a new start-up that’s likely to fail within a few years. Decades from now, how will anyone verify whether the linked artwork is the original? All common NFT platforms today share some of these weaknesses. They still depend on one company staying in business to verify your art. They still depend on the old-fashioned pre-blockchain internet, where an artwork would suddenly vanish if someone forgot to renew a domain name. 'Right now NFTs are built on an absolute house of cards constructed by the people selling them,' the software engineer Jonty Wareing recently wrote on Twitter." [Link]
Read more on NFTs and Web Archiving on David Rosenthal's blog here.