What began as the basis of cryptocurrencies such as Bitcoin, blockchain technology – a virtual ledger capable of recording and verifying a high volume of digital transactions – is now spreading across a great number of industries.
Today, we will demystify the myth of blockchain, understanding its basic principles and mechanisms and looking into its potential applications in the wine industry.
What is blockchain?
As the name suggests, think of blockchain as a chain of blocks that contain information about a procedure, transaction, event – literally anything! Blockchain is a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network. Virtually anything of value can be coded into a blockchain network; for example, you can create a wine’s unique identity, putting all the information in connected blocks.
What is the advantage of blockchain over other information tracking systems? It’s secure, powerful, and hard to alter. It is considered to be completely safe where all the encoded information is protected.
Blockchain provides immediate, shared, and completely transparent information that can be accessed only by authorized network members. As members share a single view of the truth, you can see all details of a transaction end to end, giving you greater transparency and confidence. as well as new efficiencies and opportunities. In its simple definition, a blockchain is a record of events, a record that carries information about different steps of a procedure that can not be modified.
What is the mechanism?
The fundamental advantage of blockchain is its security and unchangeability. This is possible thanks to two design concepts: hash code and peer to peer.
The hash code determines the unique identity of a block in a blockchain. Every block carries the information about its hash code, but also the hash code of the previous block.
This ensures a very secure mechanism, because if there is an attempt to alter any of the information in a block, the hash code automatically changes and the connection between blocks will be destroyed. This will result in a system that is no longer valid.
The real point that renders blockchain systems extremely powerful and immune to attacks is their peer to peer nature. A blockchain is a distributed system that is open to everyone – this means that the information of the same blockchain is distributed over many computers.
When there is a new block that needs to be added to the system, it is sent to all people and computers which have to verify the validity of this block. Only after this distributed peer to peer verification this block can be added to the system. This feature makes it possible to have many commercial agreements and transactions without intermediaries.
What are the applications?
1. Protection against wine fraud
The most evident solution blockchain brings to wine industry is to avoid wine counterfeits. This remains a great problem given that around 20% of fine wine in the market is considered to be fake.
The idea is to encode within the blockchain system all the information about a wine’s journey, with the aim of creating in the end a unique identity for that bottle that cannot be changed.
How can the architecture of such a wine blockchain be designed? Since wine production can be considered as a series of events and actions, each block can carry some information about a particular step of the entire production scheme.
For example, the first block can be about the viticultural practices, meaning that the block will hold all the detailed information about the climate, soil type, altitude, vine training, sun exposition time, temperature, etc.
The next block can be designed to hold the information of the next procedure within the wine production trajectory, which is vinification. The block can contain extensive data about the press type, yeasts, fermentation temperature, maceration style etc.
Continuing this logic, another block will be on maturation: the container style, aging time, aging temperature, etc. In the end, the bottle will obtain a unique blockchain etiquette that will ensure its identity.
To create full transparency about a bottle’s journey, each time a transaction or a sales activity occurs, this information will also be added to this wine’s blockchain, implying that the end buyer will have a total clear understanding of this wine’s origin and story: from the soil to the shelves.
Companies like Chai Vault, founded by the recognized wine connoisseur Maureen Downey in 2018, secures the authenticity of a bottle using blockchain. Their anti-fraud solution allows buyers to discern the authenticity and origin of bottles, without having to inspect or scan them.
2. Increased transparency: smart labels
Blockchain wine labels are being developed for high profile wineries as a defense against the counterfeit industry, which results in an estimated annual loss of £220 million for the UK economy.
The London-based technology company Everledger has partnered with Avery Dennison, a labeling and adhesive specialist, to create wine labels that can be tracked using technology. Each wine label created with this smart technology will have a unique digital identity that can be traced, providing transparency for both the buyer and the seller, while recording valuable data for the wineries.
A simple scan of the label will reveal a landing page that’s complete with the wine’s history, viticultural practices, aging process, etc., offering valuable insight on the wine’s journey for the producer.
3. Optimal transport conditions
This transparent traceability feature of blockchain is also appealing to some wineries, who want to ensure that their wines are delivered to their clients under optimal conditions.
Chateau Ste. Michelle makes use of the tracking data during the shipments to ascertain that at every stage of the transfer, the wine’s temperature is kept at an optimal level, and also conveys this information to their clients. This doesn’t also create transparency, but also fosters trust between the producer and client, paving the way for loyalty
The Chinese platform VeChain, founded by Sunny Lu in 2015 to enhance the supply chain management in wine sector, has signed a partnership with the French producer Pierre Ferraud & Fils with the aim optimizing logistics through blockchain.
4. Wine purchases with cryptocurrency
Some companies prefer to make use of the blockchain technology under a more financial scheme, allowing clients to buy wines with cryptocurrency, a non-state-controlled currency designed with blockchain.
A great example is Alti Wine Exchange, a decentralized platform for buying and selling wine through cryptocurrency. The inspiration behind this initiative was the negative interest rates that shocked the founders in 2017, who devised an alternative wine exchange platform for rare and fine wines.
The use of cryptocurrency is useful, because it doesn’t only solve their initial problem about the interest rates, but also allows them to provide a service that guarantees anonymity and security of investments, by providing a certificate of ownership based on a chain of blocks for each bottle of wine sold on the platform.
5. Smart contracts for wine professionals
Another application, deriving from the peer to peer feature of blockchain, is that some traditional intermediaries may no longer be needed during sales, as the mutual agreements can be done under the form of smart contracts.
In a world without blockchain it’s necessary to establish some authorities that can supervise the ongoing events. In wine sector, for example, négociants build the bridge between premium Châteaux and other sellers, or clients.
With blockchain, it’s so hard to alter any information about a wine’s identity – therefore, instead of having an intermediary like a négociant that in a way acts like a wine’s validator, more direct sales can be made to the final clients.
Of course, cultural practices and traditional boundaries remain another problem that remains to be discussed, especially considering that the wine sector is a very peculiar one with its own norms, values, and years-long dynamics.
Most would agree that it’s not realistic to think about the wine panorama in Bordeaux without the role of négociants… However, it’s exciting and very relevant to start reflecting on the new forms all the wine agents should, or will need to take, in the near future.