NFTs for social impact: addressing three key challenges

Initially discounted as a passing fad, the market for non-fungible tokens (NFTs) has surged. To unlock the full potential of NFTs for novel use cases, including charitable fundraising and environmental conservation, some key challenges need to be urgently addressed.

Just over a year ago, Mike Winkelmann’s “EVERYDAYS: The First 5000 Days,” a collage of work by the artist also known as Beeple, sold at Christie’s for $69.3 million. The artwork took the form of a non-fungible token (NFT) – a unique digital asset that contains identifying information recorded via smart contracts verified and held on a blockchain. While this was not the first NFT sold by Christie’s, it represented a “watershed moment” in the world of art and collectables not only in setting a record for the most expensive work sold online, but in firmly elevating a discourse that bridges sectors, generations and geographies.

Initially discounted as a passing fad, the market for NFTs surged to 44.2 billion USD by the end of 2021. In comparison, the size of the global fine art market is estimated at 50 billion USD. The popularity of NFTs grew dramatically in 2021, with use case opportunities reaching far beyond art and collectables, ranging from supply chain traceability, to sports ticket authentication, to charitable fundraising and environmental conservation. However, these opportunities are accompanied by key challenges including climate implications and, I suggest, amplifying a long-standing digital divide.

What are NFTs?

NFTs are tokenised versions of real-world objects like works of art, or unique assets created in the digital world, that can be traded on a blockchain. NFTs have been around since 2014, used for digital gaming and collectables including still popular versions that emerged in 2017 such as Crypto Punks. They have evolved in use cases to represent virtual or physical assets (ranging from art to luxury accessories and from endangered species to land for conservation). NFTs can be 2D, 3D images, programmable art, traditional art, AI-generated or enabled art, avatars, memes, music, virtual fashion garments, in-game items and videos – the opportunities are seemingly endless. This is because NFTs are not the assets themselves, but a sort of digital passport or immutable, irreplicable certificate of ownership allowing them to be bought and sold – including with rights and even revenue parameters that are automatically executed or controlled via smart contracts.

NFTs are changing the way we perceive and register ownership of assets, offering new opportunities and innovative business models. For example, artists can embed stipulations on royalties to ensure they receive some of the proceeds every time a piece is resold. Musicians can enable deeper engagement with their fans by providing perks or media bonuses. Luxury brands can leverage NFTs to trace physical items across their entire lifecycle to provide authenticity, to sell early access to new products, and even to offer virtual luxury products to consumers in the metaverse, building loyalty across a new digital generation.

Celebrities have entered the NFT realm, from Grimes to William Shatner and from Quentin Tarantino to Tony Hawke. Momentum has bridged genres and generations (even posthumously as with Stan Lee). Some celebrities are making targeted statements on issues of importance to them. For example, Kate Moss and Cara Delevinge released NFTs related to the theme of female empowerment and donated the funds to a related charity. In fact, charitable giving has become a foundational element of many notable figures entering the realm of NFTs. For example Jack Dorsey, the co-founder and former CEO of Twitter, sold his first tweet as an NFT for 2.9 million USD, donating the proceeds to Covid relief. The examples have grown too numerous to list but the point remains that NFTs have allowed celebrities to leverage their status not only to raise funds but to build awareness of issues and organisations they support.

Likewise not-for-profit organisations are leveraging NFTs as a new form of fundraising for their activities. Here again, initiatives bridge a growing landscape of geographies and audiences. Museums are selling NFTs of their archives, photos and physical assets to raise funds while charities are collaborating with artists for awareness building and fundraising on impact initiatives ranging from supporting girls education to climate action. Environmental organisations are auctioning digital art or photo NFTs representing endangered species with some linking to real time updates on progress and transparency on the use of proceeds – engaging a new generation that wants to witness and even participate in the impact. NFT platforms dedicated to impact such as DoinGud – have evolved to enable creators to donate a portion of their proceeds directly to a social impact organisation. Likewise, dedicated crypto platforms such The Giving Block link to NFT platforms to allow direct donations from sales and even help organisations navigate the related tax issues. All of these cross pollinations are providing an opportunity for impact organisations to expand their donor base across generations and geographies. 

Challenges: energy, narrowing lens on impact and amplifying digital divides

NFTs can mean financial empowerment and agency for many individuals, companies and organisations, but these opportunities are accompanied by new risks and challenges, including the hotly debated climate impact as well as an amplification of the digital divide.

NFTs are usually sold and purchased on dedicated digital marketplaces leveraging blockchain technology and most of these are minted on or interact with Ethereum – which uses the energy intensive Proof of Work consensus process (i.e. cryptocurrency mining). Organisations leveraging NFTs – particularly those for environmental fundraising – are facing increasing backlash given that the Ethereum has an energy consumption of a small country such as Finland. While blockchain platforms like Ethereum and NFT platforms such as NiftyGateWay are working on transitions to the more energy efficient Proof of Stake mechanism, artists and organisations are caught up in the dilemma with many advocating for systemic change.

The first line of defence has been a focus on offsetting (to compensate for the GHG emissions from the energy consumed and to provide impact visibility on the remedy). While the NFT criticisms illustrate a more nuanced understanding of the implications of different blockchain platforms, the focus on calculating and offsetting the carbon footprint – to borrow a phrase – is like brushing your teeth while still eating cookies. In addition, the footprint dialogue risks creating tunnel vision on climate issues and solutions and diverts from other implications including an amplification of the digital divide. In the current paradigm, it is the charities and initiatives that leverage celebrity champions, or that are tech and social media savvy as well as digitally connected that benefit.

While some barriers have been broken down, generational and gender gaps remain steadfastly in place with young men benefiting more on both production and consumption. In addition, while NFTS may be geographically untethered, there are geographic divides in digital literacy and power concentration with a clear user gap for East Asia, Eastern Europe, the Middle East and Africa as well as for Indigenous and remote communities. This does not necessarily mean that funds do not flow to benefit these communities and organisations, but the definition of impact as well as distribution of funds risk being defined by largely Western frameworks and actors. Moreover, these parameters risk being embedded digitally and therefore presenting as neutral. There are clear examples of digital and business model innovation that can benefit these communities but only when defining the challenges and building solutions with them directly rather than from embedded structures and processes.

This is not an accusation of greenwashing, but rather a call to attention of the new intercultural tensions and gaps that risk being embedded across generations, genders and geographies. This is a call for responsible collaborative innovation with attention to the dialogue gaps including on the definition of impact.

This article has first been published for the St. Gallen Symposium. Energy Voices is a democratic space presenting the thoughts and opinions of leading Energy & Sustainability writers, their opinions do not necessarily represent those of illuminem.