The Emergence of Generative NFTs by example of the Tezos Blockchain

8 min readAug 1, 2022

With the constant rise of DLT and blockchain, more and more use cases are gaining popularity among investors and the interested public. One popular use case is represented by blockchain-based digital tokens, that represent the ownership of specific digital assets. These so-called non-fungible tokens in the form of pictures, gifs or music. One of the emerging trends is constituted by generative NFTs. This article introduces the generative concept by illustrating a purchase within the Tezos ecosystem. — Author: Duc Au

1. NFTs — Still a success story

The success is not a surprise when looking at the global market capitalization for top collectibles and NFT tokens. Despite the current “crypto winter”, the market cap still amounts above $20 billion with a trading volume of over $4.2 billion. The exemplary and famous NFT-project “Bored Ape Yacht Club” constitutes around 10% of the overall market cap, thereby demonstrating the undeniable demand for NFTs on the market (CoinMarketCap, 2022). But the demand can also be derived from the various market initiatives on introducing NFT platforms. Besides traditional platforms such as Rarible or OpenSea, more CeFi-companies such as Coinbase, Binance or crypto.com have introduced their very own market place for digital art and collectibles (BTC-Echo, 2022). The market signs indicate a clear tendency towards the establishment of the NFT-business.

2. NFTs offer new chances for their creators

According to Valeonti et al., NFTs are “cryptographically signed copies of digital or physical assets that are publicly registered on a blockchain“. They can especially be distinguished from traditional art when observing the ability of generating revenues (Valeonti et al., 2021). While artists do not benefit from resales of physical art, the digital pendants can hold a so-called “creator fee”, which is often referred to as “NFT royalty”. Often, these fees range between 5–10%, which implies a revenue participation for the creator on each resale (Seeking Alpha, 2022). The fee is determined by the artist from the very beginning and is calculated as a percentage from the sales price. This is ensured by using smart contracts.

Besides the potential to democratize the business, NFTs provide more benefits worth mentioning. For example, artists can share their art and work in a digital manner, thereby making it directly accessible to a global audience within seconds. There are no limitations when it comes to the classical buy-and-sell-process because transactions are done peer-to-peer by using wallets. The only requirements are a device, internet connection and a public address. Trading NFTs such as art, music or collectibles can be done in a digital and frictionless manner (Harvard Business Review, 2021). More special characteristics are shortly listed:

· Uniqueness: because an NFT is not directly interchangeable (unlike a euro or dollar bill)

· Transparency: each token has an owner and the full history is accessible online

· Ecosystem: currently each NFT exists on a specific blockchain ecosystem, thereby not allowing a blockchain-agnostic transfer (yet)

3. Ethereum still the leading blockchain for NFT

If one considers buying NFTs, at some point along the journey the following question will arise: On which blockchain do I want to buy NFTs? Experienced buyers know that the Ethereum blockchain shows the biggest community, not only in terms of developers but also in terms of NFT projects based on its main layer. This can also be referred to the standard “ERC-721”, which has been established by Ethereum and its community for creating NFTs (Ethereum, 2022).

Until today, Ethereum constitutes the most popular blockchain for smart contracts and the NFT ecosystem. However, many other up-and-coming projects such as Polkadot, Cardano or Tezos are currently challenging the incumbent. Despite the market advantage, Ethereum suffers from scaling problems, thereby directly impacting various crypto projects, which have chosen Ethereum as their main foundation. One major problem with regards to NFT trading is the heavy impact of gas fees (Börsen-Zeitung, 2021). Depending on the traffic of the Ethereum chain, gas fees can skyrocket within seconds and making transactions unattractive from a user-point-of-view. Gas fees, which are almost as high as the transaction value, are not uncommon for Ethereum users. The following Figure 1 intends to illustrate the volatility of gas fees within one week. Depending on the traffic, the fee can vary from the chosen day and the chosen time. Hence, it is advisable to check for the traffic before executing a transaction on the Ethereum blockchain.

Figure 1: Exemplary Gas Fees by Time and Day

Source: taken from Ethereumprice.org (2022).

4. New trend of generative NFTs

One current trend in the non-fungible token ecosystem is stated by so-called generative NFTs. By using algorithms and lines of code, the generative artist provides an art piece, which features are randomly created and not known by the time of the buying-decision. In doing so, this adds an additional layer of uniqueness, when comparing it to traditional works (Businesswire, 2021). The artists determine the maximum number of existing pieces and offer them for the minting process.

Depending on the subjective opinion, some may refer to it as using artificial intelligence to generate these unique tokens. The generative NFTs are created by smart contracts, which ensure the on-chain-storage. By starting the minting process, the “machine” generates the features for the NFT. One can compare it with the example of an Ape-NFT, which shows various features such as wearing a white hat or possessing laser eyes. Each minting process leads to a new unique version of an Ape with different characteristics.

5. Tezos blockchain as an alternative destination for artists

One of the up-and-coming blockchain challengers for the NFT business is Tezos with its native token Tez (XTZ). The whitepaper was introduced in 2014, following the launch of the mainnet in 2018 (CoinMarketCap, 2022; Tezos, 2022). Tezos specializes in the use of smart contracts, thereby intending to provide a more modern and scalable infrastructure than its predecessors (Businesswire, 2022). Holders of Tez have the right to vote on proposals (On-Chain-Governance) to contribute to the development of the proof-of-stake-blockchain. Transactions are therefore validated and added to the blockchain by so-called “bakers”, who are rewarded in Tez. Additional facts (as of July 28th, 2022) with regards to the native token are illustrated below in Table 1.

Table 1: Overview Tez (XTZ) statistics

Source: taken from CoinMarketCap (2022).

6. Self-testing within the Tezos ecosystem

In order to fully evaluate the proclaimed benefits in comparison to competitors like Ethereum, I tested the Tezos ecosystem by purchasing generative NFTs. First of all, I decided for a specific wallet to buy Tez. In my case, I tested the browser wallet “Kukai” and bought Tez in the equivalent of $150 by using MoonPay.

Figure 2: Purchase of Tez via MoonPay

Source: own depiction with own data.

I paid €4,71 processing fee and €0,41 network fee. Thus, the net sum for my investment purposes amounts €144,88. The Tez were transferred to my public address at the Kukai Wallet.

After receiving the native payment token, I explored different NFT marketplaces within Tezos. The most common and well-known platforms are Objkt.com, teia and fx(hash). The latter specializes in generative NFTs and is drawing my attention for several art pieces. One exemplary NFT was chosen and minted for the price of XTZ 3. The transaction must be confirmed in the Kukai Wallet by typing in a self-chosen password.

Figure 3: Minting a generative NFT

Source: taken from fxhash.com, 2022.

After clicking on the button reveal, the code is doing its job and randomly generates the features for the NFT. Figure 4 shows the final generative NFT, that I received in my Kukai Wallet. When comparing it with the example in Figure 3, the differences in appearance become evident (e.g., different color of mask, different color of background).

Figure 4: Minting a generative NFT

Source: taken from fxhash.com, 2022.

Buying the generative NFT in my example costs XTZ 3, which amounts about $5,00. Figure 5 shows a screenshot of the total costs for my transaction.

Figure 5: Total costs of NFT purchase on fx(hash)

Source: taken from own Kukai Wallet, 2022.

In addition to the purchase price, there is an additional fee as well as a storage cost. Both fees in total amount around XTZ 0.16, which is around $0.25. This proves the overall perception of low transaction fees within Tezos (Messari, 2022)

7. Conclusion and outlook

My self-test shows, that there is a variety of adequate NFT marketplaces to choose from in the Tezos ecosystem. They may differ in the content specialization such as generative, musical or sustainable NFTs. With regards to the costs, they only constitute a fraction of the purchasing price. There are no gas fees, which are dependent on the traffic of the blockchain.

I conclude that the Tezos blockchain is a good starting point for interested people to start buying NFTs because it is easy and cost-efficient, regardless of if it is a generative or a “normal” NFT. In general, it is safe to say, that a wide offer of different blockchains with different marketplaces is vital for a functioning ecosystem. The intention is not to criticize existing NFT blockchains, but rather showing additional alternatives for users. The NFT industry as well as the progress in digital art is still in its infancy and one can expect more exciting developments for the future.

About the author

Cam-Duc Au is currently participant of the DeFi Talents program (Cohort 2 — Spring 2022) organized by the Frankfurt School Blockchain Center. He is a PhD Candidate at the Masaryk University in Brno in the field of crypto robo-advisory. Also, he works as Lecturer at FOM University of Applied Sciences for Economics and Management as well as Manager Holdings at P. Keppler Verlag. Besides, he is an Advisor at Blockchain Founders Group (BFG) to foster the establishment of young crypto companies.