CST3990 Individual Project - Project Proposal

A Guideline to Ethically and Environmentally Regulating the Use of Non-Fungible Tokens,

whilst Effectively Reaping their Benefits - By Katrina-Joy Rugundu, M00704713

The Project that is Being Undertaken

For the individual project, the author intends to conduct thorough research, which will then
be used to develop a concise guideline on how individuals can ethically and environmentally
regulate their use of non-fungible tokens (NFTs), whilst still effectively reaping their benefits.

The Deliverable that The Project will Contain

The deliverable that will exist within the project is a guideline that others will be able to read
and follow. This guideline will contain instructional points on how they can utilise NFTs in
more ethical and environmental ways. Each guideline will provide the readers with an
explanation on specifically how their enforcement of the regulation will be an improvement
from other options they may have considered. A key aspect of these guidelines is that they
will be created in a way that will not prevent the users from reaping the same benefits.

The Problem that Will be Addressed

The problem that will be addressed in this project, is the fact that there is a lack of ethical
and environmental regulation regarding the use of non-fungible tokens. The ethical issues
that NFTs cause includes the risk of copyright infringement and fraud, due to potential
dishonesty of a digital asset’s provenance and also of its original owner/creator when the
digital work is minted[1]. Furthermore, NFT’s are particularly harmful to the environment, due
to the amount of greenhouse gases that their creation generates[2]. Therefore, the project
will be focused on delivering methods of utilising NFTs in a way that either avoids these
issues or reduces the impact of them, whilst ensuring that the users will still be able to reap
the benefits that they are supposed to provide, i.e., unique and secure certification.

● The following points, will briefly describe the environmental and ethical issues,
regarding NFTs, that the guideline regulations will be helping people to tackle and
prevent:

The Environmental Harm caused by use of NFTs-

NFT creates a digital certificate for digital assets, using blockchain technology; this includes
games, music, art etc. This grants the digital works a unique identity and enabling the
owners to be able to sell them in a secure and authentic way[3]. The problems which are
arise environmentally are the following…

- The blockchain technology that NFTs use for the certification of digital assets,
generates a great amount of greenhouse gases and requires a large amount of energy.
This is mainly due to the significant amount of computing power that is needed to carry
 out the mining process, which is the process of adding transactions to an existing
blockchain ledger. This process requires high electricity usage and a significantly higher
heat generation than what is generated for ordinary computer operations.[4]

- The mining process becomes even more power-consuming as the price of

cryptocurrency inflates. This leads to more computers attempting to carry out the
process. This is followed by the need for other adjustments that increase carbon footprint
such as larger warehouses and stronger cooling units for the computers. Mining for an
NFT is usually done in the Ethereum blockchain, where the PoW (Proof of Work) method
is used. In using the PoW method, a significant amount of work is generated deliberately,
to certify the digital assets, in order to reap the benefits of preventing security threats and
raising the level of competition in the market. This is done with little regard for the large
carbon footprint that is left behind.[4]

- The amount of carbon emissions that are created is directly impacted by the current
price of cryptocurrencies, which can be easily swayed by media attention. Usually, this
negative influence is caused by a celebrity figure, or online influencer, who (like their
followers and viewers) is unaware of the environmental issues that these fluctuations in
cryptocurrency cause[2].

- The many transactions involved with NFTs are also partially to blame for the large
carbon emissions. This is specifically due to the multiple transactions that take place,
such as minting, bidding, cancelling, sales and the transfer of ownership[4].

The Unethical Nature of NFT Use-

- There is a risk of copyfraud taking place, which is where a false copyright claim is
placed on an asset by an individual who is not the real owner. This could be done to reap
the financial benefits of creating an NFT for a digital asset that either belongs to the
public domain or to another individual. This issue is likely to take place due to the
anonymity feature of the blockchain, which makes it difficult to verify who is the rightful
creator/owner of copyright in the underlying work of an NFT.[1]

- In the process of purchasing an NFT, all authentication is done on the blockchain. As

long as the buyer can confirm the original selling account is linked to the artist (which is
often “verified” by the marketplace) then the buyer knows that the purchased piece is
authentic, no matter how many times it changes hands. However, the blockchain does
not inform the buyer on whether the work is a copy of somebody else’s copyrighted
work—rendering that purchase worthless and subjecting the buyer to substantial legal
liability if it is resold[5].

- The non-disclosure of information regarding what individuals’ CO2 emissions are as

a result of using NFTs; resulting in a lack of self-awareness of how severe it is or
whether changes need to be made to reduce it[2].
Evaluation

Before the guideline for ethically and environmentally regulating NFTs is created, the author
plans to conduct a questionnaire amongst a certain number of people as part of the
research. The questionnaire will inquire on what ethical and environmental issues currently
worry the partakers and also on their knowledge of NFTs. This form of research will be
helpful as it will provide insight on where individuals generally lack knowledge regarding
NFTs and the ethical and environmental risks that are at stake in using them. Furthermore, it
will also provide the opportunity to include regulations that reassure the most common
environmental and ethical issues that they have, if it happens to be that the use of NFTs can
worsen them.

After the guideline regulations have been created, the author intends to evaluate the work by
conducting another questionnaire (similar to the one that will be conducted before the author
makes the guideline), where a different group of individuals will be questioned on their
current ethical and environmental concerns, as well as their knowledge of NFTs. The results
of this questionnaire (when reviewed alongside my guideline) will help the author to evaluate
how effective it will be in reassuring people’s current ethical and environmental concerns,
how much it will improve their understanding of NFTs and how to use them in an ethically
and environmentally regulated manner. This may also provide an opportunity to make
adjustments to the guideline, if the questionnaire results indicate that the written regulations
are not relatable or applicable for the people who are going to read it.

The final way in which the author intends to evaluate the work is by providing a written
analysis (or forecast) on how they believe the guideline will specifically improve the issues
(regarding NFT usage) that were initially set out to tackle. This will include descriptions on
how the author believes certain issues will improve, as well as realistic projections of how
certain statistics will change in the near future if the regulations are applied.
Gantt Chart
 References:

[1] L. Lewis, “Non-fungible tokens (NFTs) and copyright law,” twobirds.com, Jun. 2021.
https://www.twobirds.com/en/news/articles/2021/australia/non-fungible-tokens-nfts-and-
copyright-law

[2] S. Lewis, “NFTs may be the future of art — but are they threatening the future of the
planet?,” May 17, 2021. https://www.cbsnews.com/news/nft-art-environmental-costs/

[3] Simplilearn, NFT Explained In 5 Minutes | What Is NFT? - Non Fungible Token | NFT
Crypto Explained | Simplilearn, (Jun. 08, 2021). [Online Video]. Available:
https://www.youtube.com/watch?v=NNQLJcJEzv0

[4] Q. Innovation, Reducing the Environmental Impact of NFTs, (Sep. 01, 2021). [Online
Video]. Available: https://www.youtube.com/watch?v=FzhRvzm2t2w&t=54s

[5] J. Schmalfeld, “Copyright violations could crash the NFT party,” Aug. 04, 2021.
https://fortune.com/2021/08/04/nfts-copyright-violations-penalties-non-fungible-tokens-
collectibles-nfttorney-jonathan-schmalfeld/

[6] K.Cornelius, “Betraying Blockchain: Accountability, Transparency and Document

Standards for Non-Fungible Tokens (NFTs)”, mdpi.com, Aug. 31, 2021.
https://www.mdpi.com/2078-2489/12/9/358

[7] U.W.Chohan, “Non-Fungible Tokens: Blockchains, Scarcity, and Value”,

papers.ssrn.com, Apr. 21. 2021.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3822743