Transparency — Part 6 Blockchain of Things, The Blending Of Physical and Digital

David BECK AI & Blockchain / Lecturer & Research

As per Gartner Hype Cycle of Emerging Technologies 2018, both of these technologies are currently in their “peak of inflated expectations” while both are projected to highly likely require another “5 to 10 years” to mature.

TRANSPARENCY Chapter 2 — Part 6 #NFC #Blockchain #Wine

In this series of articles, I have been trying to understand the implications of topics related to Traceability (chapter 1), Transparency (chapter 2), and Decentralization (chapter 3).
In Chapter 1 Traceability, I have been analyzing the relationship between wine producers and consumers. Then, I have been considering the effects that Transparency could have on the wine supply chain. Here is the fifth article of chapter 2. In the 3rd Chapter, I will consider whether Decentralization could be the future of the wine business industry.

I had the pleasure of interviewing 40 leading players in the wine and the tech industries. For this chapter, I have discussed with (sorted by alphabetical order):
Laurent David President at La WineTech
Antoine Gimbert Export Director at Domaines Delon
Fabien Guédé Co-Founder & COO at Wine in Block
Denis Houlès Founder & CEO at 1275
Matthieu Hug Founder & CEO at Tiltak
Nicolas Mendiharat Co-Founder & CEO at WineChain
Tom Morris Business Development Manager at VeChain
Oliver Oram Co-Founder & CEO at Chainvine
Sebastian Schier Managing Director at vinID
Dorian Wansek Chief of Staff to the CEO at Arianee

Technology is evolving rapidly. As a result, we are beginning to see the implementation of phygital goods and experiences from brands across various industries. Phygital is the combination of physical goods and experiences with digital ones. Phygital entails utilizing technology to create a seamless customer experience.

Combining physical and digital goods to enhance the consumer’s experience is nothing new. The term itself was coined to describe the connection between physical and digital ecosystems where all brand experiences lie. At the time, phygital was a concept that highlighted the great potential for brands to engage with consumers using both physical and digital means. In 2007, brands and consumers had only just begun to explore this innovative concept.

The 2020 pandemic is what really accelerated this blend of physical and digital worlds. Considering many of us were separated from our friends, families, and co-workers, we lacked social interaction. Without a doubt, the pandemic has changed the way we think as humans, as well as what we view as acceptable in terms of consumption. The way we shop, dine, and participate in events has permanently changed.

We buy most of our goods online, we order food through an app, and we attend important meetings and conferences through a screen. And this is just the beginning of what a truly phygital economy will look like.

Now with the implementation of blockchain technology, we have access to trustless networks that allow us to interact without the need for an intermediary and prove ownership of digital goods via NFT technology.

USE CASE 17 — 1275 offers fully traceable fine wine collections.
1275's end-to-end solution involves designing personalised fine wine collections, backed by unrivalled data and documentation on each bottle's history and the conditions it was exposed to from day one.
The 1275 process begins by exclusively sourcing wines directly from the world's most coveted estates. Its "Internet of Bottles" process then protects the wines and documents their journey to 1275's wine vault in Switzerland, and throughout their time in storage.

1275's app enables its collectors to scan a NFC chip on their bottles to view their entire history, including temperature charts, since the day they left the vineyard.
The 1275 mobile app's interface also enables users to:
- View their collection by vintage, region and type
- Stay up-to-date with the latest critic ratings, tasting notes, and drinking windows
- Monitor how their collection's value is growing – through a direct feed from Liv-ex, the fine wine marketplace.

Denis Houles believes that great wines deserve respect, and that collectors deserve transparency on what they are buying. Their traceable, end-to-end solution eliminates the risk of fakes and wines damaged by improper transport and storage conditions. It means their collectors' bottles should command a growing premium over time vs the same wines in the secondary market.

With its sharp focus on the needs of collectors, 1275 has designed a comprehensive solution that marks the beginning of a new era of transparency and accountability for the fine wine industry.

The Fusion of Blockchain and IoT Technologies

Both Blockchain and Internet of Things (IoT) are the two major disruptive emerging constituents of the contemporary internet-enabled era of technology. As per Gartner Hype Cycle of Emerging Technologies 2018, both of these technologies are currently in their “peak of inflated expectations” while both are projected to highly likely require another “5 to 10 years” to mature.

In fact, comparing with the Gartner’s 2017 predictions, Blockchain – without changing much – hovered at its current ongoing position on the hype cycle. On the contrary, the locus of IoT has progressed reasonably – prevailing within the same arc (i.e. peak of inflated expectations) of the curve however, IoT pedalled back on the level of maturity from “2 to 5 years” to the current state of “5 to 10 years”. Such regression of IoT, in terms of reaching maturity level, however, is justified by its widespread adoption in multifaceted applications and the security concerns raised thus far. In fact, both of these technologies are distributed, autonomous and mostly decentralised systems possessing connatural potentials to act as complementary to each other.

IoT requires strengthening its security features while Blockchain inherently possesses them due to its extensive use of cryptographic mechanisms and Blockchain – in an inverted manner – needs contributions from the distributed nodes for its P2P (Peer-to-peer) consensus model while IoT rudimentarily embodies them within its architecture.

Blockchain of Things is the evolutionary form of IoT and is the future. Many people in the tech industry are of the view that IoT by itself — not evolved into Blockchain of Things — will be extinct in 20 years.

USE CASE 18 — Crurated was launched to connect connoisseurs directly with wine producers, with information and provenance assured through blockchain technology. 
Burgundy’s Domaine Arnoux-Lachaux has signed an exclusive direct-to-consumer distribution deal with fine wine club, Crurated. The wine estate last year signed an exclusive distribution deal with Crurated on his own range of micro-négoce wines.

It means that each bottle of Domaine Arnoux-Lachaux wine sold through the fine wine club will be recorded it on the blockchain.
These can be accessed by tapping on an NFC or RFID enabled phone, which verifies the authenticity of the bottle and provides details such as vintage, vineyard location, and varietal. The bottle history is also updated via a new blockchain recording anytime the wine is resold and moves from one client to another.

Using Crurated enables “verifiable provenance for every single bottle of wine that leaves our Domaine and enters their warehouse,” Charles Lachaux said, as well as allowing the team to connect with buyers of its wines in a meaningful way through unique events across the world. “This connection allows us to communicate our winemaking philosophy and creates a stronger connection with wine lovers all over the globe,” he said.

Although Domaine Arnoux-Lachaux wines will be sold directly to consumers exclusively through the Crurated platform, B2B restaurant sales will still be handled by distributors.

The Industry pain points commonly encountered in the development of IoT include:

  • Device security
    IoT devices, such as smart home air conditioners, smart street lights, smart smoke alarms etc are difficult to secure, due to the high development cost. They are easily hacked and can even be controlled or infected with malicious software.
  • Personal Privacy
    Existing IoT devices are centrally controlled and managed with all of the users’ data aggregated into a data center. However, this leaves the data center at risk of being attacked or hacked. Data business models are maturing and the commercial value of user data is increasing, making the disadvantages of storing data in data centers even more precarious.
  • Demand on Server Architectures
    The number of IoT devices are set to go through an explosive growth. This growth will increase the load placed on the current IoT center control system and existing server architectures won’t be able to meet this demand.
  • Communication compatibility
    Many companies around the world have developed their own IoT platforms without common standards and languages between platforms. This makes it difficult for them to communicate with each other and will bring a lot of friction to the entire development of IoT.
  • Multi-agent cooperation
    IoT devices are mainly produced by self-organizing networks of operators and enterprises. However, the amount of IoT devices will inevitably grow and IoT devices will also need to communicate with each other, leading to higher costs among the entities involved in cross-subject collaboration.

Application of the Blockchain of Things

  • Real-time supply chain management
    The Blockchain of Things can achieve a real-time supply chain management and decentralized database through blockchain consensus and smart contracts, without the need for third-party trust institutions. The Blockchain of Things can also monitor, trace and tamper-proof the entire process of production, processing, transportation and sales of raw materials. Compared with the existing supply chain, it can clearly define the distribution of power and responsibility, reduce costs and increase efficiency.
  • Value Network
    The Blockchain of Things connects the value of physical objects to the digital world (blockchain) so that each object can fully realize its value and gain the opportunity for value exchange.
    It can also shape intangible assets such as user information and usage data in the Internet of Things into transparent and valuable deterministic assets and provide a reliable trading and sharing platform. Users can also manage their own usage data and obtain the benefits generated by them while ensuring personal privacy.
  • Sharing economy
    Blockchain of Things can write shared ideas and patterns into blockchain smart contracts and handle contracts for rent, deposits and rules through smart contracts. Blockchain technology can eliminate the role of the central platform, simplify the use of sharing services and make sharing management more accurate. For example, the fee for shared bikes can be measured in minutes or even seconds. The blockchain’s information features can also improve mutual trust in the sharing economy. For example, when offering a house for rental, homeowners need to provide their true identities and ensure the reliability of their listings and the safety of their tenants.
USE CASE 19 — vinID combines blockchain and NFC technology to ensure each product has its own unique and dynamically encrypted ID.
The encounter between the blockchain-based tech and fine German wines took place at the VDP Rheingau auction at Kloster Eberbach. The VDP Rheingau auction at Kloster Eberbach is one of the highlights of the global wine calendar. Top wines produced by VDP estates in the latest vintage are sold under the hammer.
Among the bottles auctioned every year are ‘Auction Reserves’ that are not released to retailers, and thus particularly keenly sought after by collectors on the secondary market.

To protect their wines from being forged, the producers adopted a combination of an electronic NFC – Near Field Communication - chip and tag and a NFT – Non Fungible Token - created by vinID.
The key difference between his business and other NFTs is the way the digital certificate is ‘twinned’ with the bottle, and the involvement of the producer. The vinID NFTs are not bought and traded for speculative profit like most NFT digital art; they primarily exist to protect the winery and consumer from wine-faking.

The process begins at the bottling stage, when the NFC chip containing information about the wine from the producer and a link to an individual NFT created by vinID, is placed on top of the cork before the application of the capsule. Anyone scanning the bottle with a smartphone can access all the details on the NFC, including any changes of ownership, provided the sale has been recorded on the blockchain. As soon as the capsule is removed, this too will be recorded, which, prevents anyone from refilling the bottle with another wine.

The use of the NFC allows those producers an ongoing means of communication and marketing to people who already own their wines. If they can be persuaded to scan their bottles on occasion, those consumers might see information about new releases, tastings and events that are targeted directly at them rather than a broader audience. Potentially, they might also be put in contact with other NFT-wine owners with whom they can trade authentic bottles.

Blockchain of Things and Cybersecurity

Blockchain and IoT – as standalone technologies – have already proved them to be highly disruptive. Since IoT highly utilises the existing wireless sensor network technologies, intrinsically it remains vulnerable to privacy as well as security threats. On the contrary, blockchain, by its design and architecture- consensus method and cryptographic techniques – is considered as a Trust Machine. Thus, it possesses the potentials to address major share of the security issues found in IoT. Blockchain requires participating nodes for consensus approach which can be supplemented by IoT devices while IoT requires security features which can be met by Blockchain such as transparency, privacy, immutability, operational resilience and so forth.

IoT is a cyber-physical system which help represent the “connected” physical world into part of the cyber world. However, due to various reasons, the security aspects of IoT has not been properly addressed at the design phase of the devices and products. With the advent and increasing popularity of Blockchain, there has been a paradigm shift in IoT research, particularly integrating IoT and Blockchain together for a more robust but secure cyber world. However, since the technologies are still not fully mature, many challenges are yet to be addressed as emerged from such integration. Many studies suggest applications of Blockchain as a probable solution to tightening the security aspects of IoT ecosystem.

This was the sixth and final article of Chapter 2 — Transparency. In the next article, I will be writing the first article on decentralization and its impact on the wine market.