Wine, Crypto, & NFTs
Wine fraud is rampant. Who hasn't seen the movie Sour Grapes about "a man who made millions of dollars from 2004 to 2012 by putting less-expensive Napa and Burgundy wines into counterfeit bottles at his home?" It's even more so with the pandemic fueling online wine sales, which has created an untested dilemma. How do you track a bottle's origins through an online purchase? It's a predicament that many vineyards and distributors are being faced with.
Wine fraud is an estimated $3 billion gouge in the industry.
There's big money to be made in the wine fraud space, and counterfeiters can make a small fortune off of someone else's misfortune. Right now, detecting fraudulant wine bottles is a time-consuming process and riddled with human error. A label needs to be analyzed, capsules and corks scrutinized, and wine seller checked and verified. It's not sustainable.
Wine enthusiasts everywhere are being thrust into a digital future that isn't as simple as the olden days of visiting a vineyard and buying a bottle from the source. Nowadays, how do you guarantee that the bottle you purchased online is the real deal and not a cheap knockoff? A proper ledger for tracking wine sales from the creator to the purchaser and beyond is necessary.
Enter the blockchain.
Blockchain offers a substantial amount of perks to the wine industry's woes by establishing purchase history, added security, and verified autheticity with each bottle or digital asset. What are the industry insiders saying?
"Blockchain is the ideal solution for bringing transparency to a supply chain as complicated as that of the wine industry, which involves numerous participants and where needs vary depending on the destination of the shipment." said Raj Rao, general manager IBM Blockchain Platforms. "Having an immutable digital record of transactions and conditions ... provides the end consumer with greater information that the wine they purchased tastes as the winemaker intended and reflects the immense care that went into producing that wine."
Digital Wine Provenance
Can the crypto market genuinely improve the way that the wine industry functions? It's looking pretty promising. One thing that I think we all can agree on is that we need to restore trust in the wine industry. But how do we do this? By improving the "provenance" of each wine asset, whether it's a physical bottle or a digital asset token (we'll get into this later!).
In fine art, provenance is a simliarly used word for tracking the earliest known origins of a piece. It guarantees—to the best of the seller's knowledge—that what you're receiving is an authentic work of art that merits its price tag. Like the wine industry, the art world is also plagued by counterfit products.
Many startup companies, including a fellow New England-based company called eProvenance, are already creating blockchain ecosystems for the wine industry. Each "wine profile" provides consumers with a deeper association to each product. By scanning a QR code, a purchaser can access a bottle's provenance, flavor profile, or even sustainable practices associated with the wine.
QR codes can also verify that a wine bottle came from the correct vineyard and confirm the vintage year. Wineries can limit the fraudulent inventory hitting the market by issuing a certification trail on the blockchain ledger. Distributors and retails can also confirm that the bottles they have ordered are also authentic. That is an unbelievable improvement from our current system of examining "watermarks, ink colors, paper styles, and artwork for imperfections out of the norm from the originial origin."
On top of selling physical products on the blockchain, wineries can also cash in on a new revenue stream by creating digital wine assets, like NFTs.
What are NFTs?
Non-fungible tokens (NFTs) exploded in popularity a few years ago when digital kittens were being adopted, swapped, and traded on CryptoKitties. Although a fun and meme-worthy venture, it was a moment where we all got our first taste at what NFTs could be: moneymakers for selling digital assets to collectors everywhere. It proved that people were willing to pay big bucks to own—of all things—digital kittens as if they were trading cards.
So, are NFTs simply digital trading cards?
No. Not really. Many NFTs and blockchain-based businesses inhabiting the digital wine space are leveraging Ethereum, including the largest NFT marketplace OpenSea. Other competitors are Rarible, CryptoSlam, and Nifty Gateway. So it's more like having a one-of-a-kind digital wine asset that is autheticated by a vineyard as an original production and certified on the blockchain. You even get proof with a unique identifier. Pretty cool, right?
Research firms have found that "NFTs were a $250 million market in 2020, with investments up 299% year-over-year." Cryptocurrency blockchain marketplaces surpassed $1 billion in early 2021.
NFTs are intriguing because they essentially create a digital asset that, in theory, can't be copied. You can buy and sell the original, but NFTs allow authenticated replications of that original work that can be verified on the blockchain.
Think of it as having a piece of wine art. You have the original artwork that the painter has created with brush strokes and paint on a canvas. They sell that one. But then artists typically sell lithographs and prints that are signed and come with a certificate of authenticity. So, although a vineyard may sell a physical bottle of wine as an NFT, they can also sell variations of digital assets to grow revenue.
Exciting, right? That's why we've thrown our hat in the ring.
So far, we've launched a collaborative NFT with Skipstone and many more planned with vineyards, distributors, from around the globe. We believe that more due diligence is needed for every purchase of wine and our industry's accepted verification system simply doesn't work for the digital age. Wine authentication is a process that we should be happy to offload to computers and the blockchain. Who knows? Maybe wine NFTs could be bigger than CryptoKitties some day. They just need to be cuter.