Generative NFTs on the Tezos blockchain

As blockchain gains momentum, more use cases are gaining popularity.

As blockchain gains momentum, more use cases are gaining popularity. A popular use is blockchain-based digital tokens that represent ownership of certain digital assets and can be used for investment purposes: Non-fungible tokens. A new trend in this area is generative NFTs, for example on the Tezos blockchain.

A look back at the early days of NFTs

Experts still debate the true origin of NFTs. The vast majority agree, however, that the first step toward NFTs was taken with the concept of Colored Coins in 2012 by Meni Rosenfeld. The idea was to represent and manage ownership of real assets on the blockchain. An extra "token" element was meant to determine usage and make certain tokens distinctive and unique. However, the concept was never fully realized due to the technical limitations of the Bitcoin blockchain.

The first known NFT was mined in 2014 by artist Kevin McCoy under the name "Quantum" on the Namecoin blockchain. After that, many experiments followed on different blockchains and platforms. It’s important to note that the Bitcoin blockchain was never intended as a database for tokens to represent real asset ownership, unlike Ethereum—the current leading NFT platform. The major shift of NFTs to Ethereum is supported by the introduction of token standards. Token standards give developers guidelines for creating, issuing, and using new tokens in line with the underlying blockchain technology, making token development easier and faster.

The first big (and expensive) NFT collections

Software developers John Watkinson and Matt Hall created a series of NFTs on the Ethereum blockchain in 2017 called "CryptoPunks". These are now considered one of the earliest NFT series and were originally even given away for free to blockchain users. No one could have imagined back then that these NFTs would trade for millions of euros in 2022. Not long after, the NFT series "CryptoKitties" was introduced. CryptoKitties is a virtual game built on the Ethereum blockchain where players can adopt, breed, and trade virtual cats. It didn’t take long after its development for the game to go viral by the end of 2017.

Following its huge success, developers and publishers further developed and integrated the NFT idea into an ecosystem. NFTs gained increasing public attention and in 2021 could take their next big step into the mainstream. Topics like NFTs and the metaverse were picked up by prominent newspapers, and even established companies started showing interest and eventually offered them in combination with their products.

New marketplaces

The success isn’t surprising when you look at the global market capitalization for top collectibles and NFT tokens. Despite the current crypto winter, the market cap still exceeds $20 billion with a trading volume of over $4.2 billion. The famous NFT project "Bored Ape Yacht Club" accounts for about 10 percent of total market capitalization, underscoring undeniable demand for NFTs on the market. In addition to traditional platforms like Rarible or OpenSea, other CeFi companies like Coinbase, Binance, or Crypto.com have launched their own marketplaces for digital art and collectibles.

New revenue models for artists

NFTs can be distinguished from traditional art by their revenue potential. While artists don’t benefit from the resale of physical art, digital counterparts can carry a so-called "creator fee," often referred to as an "NFT royalty." These fees typically range from 5 to 10 percent, meaning the creator earns a share of proceeds on every resale. The fee is set by the artist upfront and calculated as a percentage of the sale price. This is secured by the use of smart contracts.

Beyond the potential for new revenue models, NFTs offer other notable benefits as well. For example, artists can digitally share their work, making it immediately accessible to a global audience within seconds. There are no constraints on the traditional buying and selling process, as transactions are peer-to-peer and conducted with wallets. All you need is a device, an internet connection, and a public address. Trading NFTs like art, music, or collectibles can occur in a digital, frictionless way. Other notable features:

• Unique: because an NFT isn’t directly interchangeable (unlike a euro or dollar bill).
• Transparency: each token has an owner and the full history is publicly accessible online.
• Ecosystem: currently every NFT runs on a specific blockchain ecosystem, making cross-chain transfer (yet) not possible.

The leading NFT blockchain remains Ethereum

When considering buying NFTs, the question inevitably arises: which blockchain do I want to buy them on? Experienced buyers know Ethereum has the largest community, not just in terms of developers but also the number of NFT projects on the main chain. You can also refer to the "ERC-721" standard that Ethereum and its community established for creating NFTs.

To date, Ethereum remains the most popular blockchain for smart contracts and the NFT ecosystem. Many other emerging projects like Polkadot, Cardano, or Tezos challenge the established order. Despite its market advantage, Ethereum faces scalability issues, impacting various crypto projects that chose Ethereum as a pillar. A key issue related to NFT trading is the strong impact of gas fees. Depending on on-chain traffic, gas fees can spike within seconds, making transactions unattractive from a user’s perspective. Fees that are almost as high as the transaction value are not uncommon for Ethereum users. The figure below shows the volatility of gas rates within a week. Depending on traffic, the fee may vary from the chosen day and time. Therefore, it’s wise to check the traffic before executing a transaction on the Ethereum blockchain.

New development: Generative NFTs

A current trend in the NFT ecosystem is the so-called generative NFTs. By using algorithms and coded rules, the generative artist delivers a work of art whose attributes are created randomly and aren’t known at the time of purchase. This adds an extra layer of uniqueness compared to traditional works. The artist(s) set the maximum number of pieces available and offer them before they are minted.

Some experts say artificial intelligence is used to generate these unique tokens. Generative NFTs are created by smart contracts, which also handle on-chain storage. At the start of the making process, the "machine" generates the features for the NFT. It can be seen as the Bored Ape NFT example, which has features like wearing a white hat or having laser eyes. Each mint creates a new unique version of a monkey with different features.

Tezos blockchain as an alternative to Ethereum

One of the rising blockchain challengers is Tezos with its native token Tez (XTZ). Tezos specializes in smart contracts and aims to offer a more modern and scalable infrastructure than its predecessors. Tezos holders have the right to vote on proposals (on-chain governance) to contribute to the development of the proof-of-stake blockchain. Transactions are thus validated and added to the blockchain by so-called "bakers," who are rewarded in Tez. Minting and trading NFTs on the Tezos blockchain is often considerably cheaper than on Ethereum. This makes the Tezos blockchain suitable for new users who want to start making NFTs affordably.