A lot of hype has arisen from the much-anticipated Ethereum upgrade, known simply as "The Merge," and this improvement will end all arguments about Ethereum's environmental impact, and to that extent the impact of NFTs. This improvement has been in the works for many years now, and is part of a much larger path to a better blockchain.
Ethereum has brought many great innovations to the blockchain industry, including the coding standard for non-fungible tokens (NFTs). However, since Ethereum was the first blockchain to implement programs that enable these innovations, it also uses the same mechanism as Bitcoin for validating transactions, called "mining." Because this process is energy-intensive, it results in anything that runs on Ethereum also being energy intensive, which inspires the argument that NFTs harm the environment. At the same time, it is often cheaper and better to use green energy for crypto mining, and many Bitcoin miners will seek out green energy sources for this reason, but that often gets overlooked when cryptocurrency mining's impact on the environment is brought up.
The Ethereum Foundation has spent years working towards its solution, "Ethereum 2.0," and by the end of September, Ethereum will have fully merged with Ethereum 2.0. This new transaction validation mechanism relies on users "staking" their ETH to participate in transaction validation, which earns them an interest rate on that ETH, and will no longer require cryptocurrency mining. While not perfect, this mechanism is far better for energy consumption and transaction efficiency, and as part of the roadmap to Ethereum 2.0 will set the stage to begin scaling Ethereum's network for a much larger load of users.
The Merge Will Fix Energy Costs, But Not Gas Fees
A common misconception is that this upgrade will reduce Ethereum's infamous transaction fees, called "gas fees," which prevent most users from enjoying its applications. Along with non-fungible tokens having a large carbon footprint, users also have to pay absurd fees to obtain them. These fees are a consequence of Ethereum not being engineered for large-scale use, and result in high fees during periods of network congestion. Blockchain analytics firm Messari shows the average transaction fee that Ethereum users pay over any time frame. Between July 2021 and July 2022, average fees ranged between $4 and $47, while prior to June 2020 the average fee was less than $1. Sometimes, these fees can soar into hundreds of dollars. The Merge itself will not reduce these fees, but it is a vital step towards the next improvement that will see them reduced.
According to the Ethereum Foundation, after The Merge is complete, the process of rolling out "sharding" can begin. With sharding, data storage requirements can be split across hundreds of smaller "shards" of Ethereum run by their own nodes, vastly reducing the amount of data that needs to be stored on Ethereum. Sharding is the next milestone to reach after The Merge is complete. By reducing the load on nodes running the network and reducing the data that needs to be stored by the base layer, the transaction fees will be massively cut, and Ethereum will (finally) be affordable for most people to use.
The Merge is a good step for Ethereum, as it will remove the argument that Ethereum is bad for the environment. The amount of energy consumed to run Ethereum after The Merge will only be what computers running it require, eliminating the need for energy-intensive mining rigs. While this does not improve Ethereum's gas fee situation right now, it sets the stage for the next phase of Ethereum's development that will see the fees reduced. Ethereum NFTs will not only be environmentally friendly, but they will be cheap to produce as well, and affordable for most applications. With use cases ranging from tokenizing professional services to trade as commodities, to representing property deeds on the blockchain, to using NFT domains to name crypto wallets, a better Ethereum will be a technological breakthrough that will be foundational to the Digital Age.