When my son was little – he’s 21 now – he had boxes and boxes of toy cars. He had all sorts, Hot Wheels, Matchbox, ones that he picked up in car boot fairs, ones that he stole from other people’s houses, ones that came free on the front of a magazine. He probably had close to about 300 of the things. He would place these little cars all along the skirting boards of our apartment one after the other, sort of like a really, really, big traffic jam. Despite them looking like they were completely random, there was great method in my son’s madness. When I tried to tidy these away (they were all over the place, and quite frankly, a bit annoying), he went ballistic. When I asked him why I couldn’t put at least a few away, he simply replied,“they’re in a chain. And if you take one away, then you’ll break the chain. And then it won’t work anymore”. The thing is, that still makes perfect sense.
Blockchain is a little like my son’s toy car traffic jams. Take one link away, and you’ll break the chain. And then it won’t work anymore.
What Is Blockchain?
The clue is in the name. Blockchain is a way of recording information and data, in a block and on a chain. This information is stored in such a way that it is nigh on impossible to alter, making it very, very hard to falsify any documentation.
Think of those old double-entry ledgers that used to be around pre-computer days. A blockchain transaction is basically a digitised version of this. The transaction is recorded and is then duplicated many times over. This transaction (or block) is then distributed across the whole blockchain network, imputed in the system with a cryptographic signature that cannot be changed. Each block contains the data relevant to that transaction – every time new information is added to the block, the block is updated and recorded on the digital version of the double-entry ledger. Each block must be identical at all times, otherwise, the chain is broken. For further security, the decentralised database is managed by multiple participants. Thus, the potential for fraud is completely eradicated.
Sounds complicated? It is. That’s why it works.
How Is Blockchain Used for Wine?
But how does using blockchain translate to fine wine transactions? FApart from the obvious financial history of your bottle, the certitude of provenance (see below) is a major asset. Then there is the potential for geolocalisation – meaning winemakers can gain a greater understanding of where and when their wines are being enjoyed and can adjust their marketing and export schedules accordingly. And then there is the elimination of the potential for bottles going “missing” during shipment. Blockchain technology can also record temperature and humidity ensuring that high-value bottles retain their worth by being kept in optimal conditions at all times. In general, if you are willing to invest in wine, you better choose a wine investing app that supports Blockchain.
It’s easy to see why blockchain technology is beginning to appeal more and more to fine wine investors and consumers. The way it is used is as follows: when the wine is bottled in the facility, the blockchain software (there are a few on the market) time stamps the product, thus “giving birth” to the blockchain that will contain every nugget of data. The start of this chain for wine is usually regarding the grape, terroir conditions and harvest date. The timestamp is recorded on a smartphone and then transferred onto an NFC (Near Field Communication) chip, or in some cases, a QR code. This chip or QR code stores all the wine’s data, from its birth in the winery to how it is transported, its distribution and transaction history and so on. This is of unimaginable importance to collectors and consumers.
Typically, fine wine has eight separate touchpoints before arriving on the consumer’s table. The life cycle goes from grape grower to producer (not always the same person) to winemaker. Then, once the wine is bottled, it goes to the supplier, the freighter, the import/export agent, the retailer before finally reaching the consumer. With blockchain technology, each link of the chain enters their relevant information: the grower enters data regarding the weather conditions, harvest, how the grapes were transported to the winery etc. The producer will record how the equipment is used, the winemaker how the grapes were crushed, the blend, the fermentation, temperature etc. This chain goes on and on, getting more and more complex each time (remember it is duplicated many times over), and will detail everything from whether the wine was repackaged, the temperature during transportation and the sale history. We won’t go into the importance of wine provenance here, as we have already written a great article that covers the topic in depth.
This type of technology is revolutionising the investable fine wine world. Approximately 20% of fine wine sold on the open market is considered to be fake (some experts believe this number to be closer to 50%). However, the numbers do not matter, as once a producer has a reputation for fraud, even if it is not their fault, regrettably their sales will likely never recover. Many of you will already be familiar with the Rudy Kurniawan fraud (we have a great article on wine fraud), but had the blockchain technology been around at the time, the scandal would not have happened. As it was, Kurniawan was reported to have sold tens of thousands of bottles for a value of well over $500 million. Less well known but no less harmful was the Gironde wine scandal, when a world-famous producer of Bordeaux Grands Vins de Gironde was fined $500,000 for selling vin de table under a more expensive label. Thanks to blockchain, this type of behaviour simply cannot exist.
However, blockchain doesn’t come cheap. It is also dependent on all the links in the chain being set up with this type of state of the art technology. While the bigger Bordeaux producer can afford to invest in things such as blockchain, producers with limited budgets, less staff and limited distribution markets cannot. Rick Rainey of Forge Cellars in NY confirms this, “At this moment, for a small winery like us trying to break into the mainstream with dry aromatic white wine, all of our efforts in both time and money are squarely placed on spreading the gospel of our wine,” he says. Quite literally word of mouth, then.
The relatively recent advent of blockchain technology also means that while it is fine for vintages post 2020, what of those prior to? Those great early 2000 vintages are in their prime drinking window now, so how can investors and consumers be sure of their traceability and transaction history? Well, we can’t. You can add the data at a later stage (many larger wineries are doing this with their pre-blockchain reserves) but if the wine is pre-2000 it might be more problematic. Unless the data has been manually recorded, there is no chance that you will be able to include real-time information regarding the wine’s harvest conditions or winery temperature during the bottling phase. What you can do however, is trust a reputable wine platform to have done the hard work for you. The origin of all wines traded on the Vindome platform is guaranteed, each wine is an ex-chateau and comes with a label equipped with an NFC (Near Field Communication) microchip so that every transaction is registered in a blockchain. So all you have to do is click and buy.
Are you ready to start selling your wine collection? Read our step-by-step guide on how to sell a wine collection.