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How NFT could change the wine business?

While innovation and digitalization are profoundly transforming almost all sectors of activity, the art business has not undergone any major change in its practices for decades. Or almost…the recent innovative experiments with NFTs could well mark a revival.

NFTs are a big topic in the news right now. We hear a lot about them, both in the business press and in the mainstream press. What brought NFTs to the forefront was this Christie’s sale of a digital work, a work by Mike Winkelmann (aka Beeple) that sold for $69 million [Feb 16, 2021].

What are Non Fungible Tokens?

In 2021, it traded for as much as $13 billion worth of NFT. It has become a topic that is talked about in terms of investment, speculation and in terms of new technology.

NFT stands for Non Fungible Token. In simple terms, a “token” is a title of ownership. It is the materialization of a digital asset. This asset is stored in the Blockchain.

READ MORE Blockchain: the Future of Wine?

An NFT is a digital asset that we can use to represent ownership of unique items. They can only have one official owner at a time. No one can modify the record of ownership or copy/paste a new NFT into existence.
NFT stands for non-fungible token. Non-fungible is an economic term that you could use to describe things like your furniture, a song file, or your computer. These things are not interchangeable for other items because they have unique properties.

To define “non-fungible”, let’s define “fungible”. What is fungible is what is exchangeable, what is interchangeable. For example, money – as we know it today – is something that is fungible. I can exchange a 10€ bill for two 5€ bills. It has strictly the same value. What is not fungible, what is “non-fungible”, is what is unique. For example, a work of art.
So an NFT is a title to a unique asset. What is interesting about this token is that it is absolutely unfalsifiable because it is hosted in the Bockchain. The NFT are these titles of ownership of digital goods. You can own a file, a video, an image, a piece of code. But it can also concern physical goods, material goods.

Setting the rules with Smart Contracts

NFTs are accompanied by so-called “smart contracts”. These smart contracts can determine in advance a certain number of rules that will automatically apply to each transaction.
Concretely, if I am an artist, I can specify in the contract that is attached to the NFTs that 10% of the amount of the transaction will be mine. And we could say that 5% of all future transactions will go to the gallery owner who allowed me to create this work. This opens up extremely interesting perspectives for the entire creative industry. In some respects, we can consider that wines and spirits are creations, or at least forms of creation.

There are two main principles for using NFTs. The first is that you need to have a wallet. A wallet is a digital wallet that allows you to acquire crypto-currencies. Today, it’s getting easier and easier to do. Then, there are what we call “marketplaces” on which you can find NFTs. In the world of wines and spirits, there are marketplaces like Blockbar, Tattoo Wine, Chainvine or Wiv.

NFT initiatives in the wine industry

There are a number of operators who have seized on the phenomenon and have tried their hand in the world of wine and spirits in France. If we think about the big players, there is Dom Pérignon (LVMH) which issued an NFT as part of the launch of its special vintage with Lady Gaga. There was a numbered digital work, an experience including a home delivery.
There’s Angelus, the famous Saint-Emilion Grand Cru Classé, which also had an offer. Angelus has released a unique digital work in 3D and an experience at the château.
In the world of spirits, Hennessy offered on the Blockbar marketplace limited editions of its ultra-exclusive cuvée – Cuvée 8 – limited to 250 copies. Each NFT comes with a sculpture and a bijou key that allows the box to be opened. We are talking about transactions that amount to nearly 90 ethereum (ETH), or 230,000 euros.
There are also smaller estates – Aubert et Mathieu or Château Darius – that have launched NFTs.
In all the cases mentioned above, one bought the physical version of the bottle. In the case of primeurs, we buy the future version, the bottle does not exist yet. On the other hand, we have seen some first initiatives to sell virtual bottles. One can buy virtual bottles to use them in the metaverse.

READ MORE How Metaverse Can Be Used to Sell More Wine

Why are NFTs interesting for the wine business?

For the wine industry, NFTs are an opportunity because wine and spirits, especially high-end ones, have a number of characteristics for which NFTs are of great interest:

  • Wine – whether we like it or not – is a speculative product. Wine is a product that is auctioned, speculated and invested in. The NFT is going to become the future support for everything that is investment and speculation.
  • NFTs are well suited to what is rare, even what is collectible. Wine, as we can see with many examples, is a product that is subject to rarity, it is a finished product.
  • Wine is a product for which there is a great need for traceability. The NFT allows a perfect traceability of the transactions. Tomorrow we will also be able to associate other data to know in which condition it was stored and so on. This traceability, especially over the long term, when we think of the vintages that we will keep for 10, 20, 30 years, this traceability is of great interest.
  • One thing that works well with NFTs is the fan base. We know that in the wine world, there are fans, there are aficionados of certain wines. We can really think that it will reinforce this collectable dimension.
  • With NFTs you can buy virtual. Finally, this is something that the wine industry knows well. If we think about en primeur purchases, it is nothing more or less than buying a promise. As such, NFTs could be perfectly suited to all this structuring of future sales, of en primeur sales.
  • The principle of royalties. Today, some famous producers make allocations of their wines. For a certain number of crus, notably the crus of Burgundy, there is a speculative dimension. But the producer does not benefit from this speculative dimension. For example, if a producer puts a bottle of wine on the market for €50 to his allocators, the allocator will be able to resell it the next day for €200, €300, €400, €500 on the parallel markets. Tomorrow with an NFT, a producer who sells his allocations by contract could perfectly benefit from a royalty on these resales and on this speculation. This will open up some incredible perspectives for all the people who produce exclusive wines.
  • We will be able to combine the sale of the NFT with a somewhat exclusive experience: a visit to the estate, the fact of being able to taste with the producer, to have a privileged time with the winemaker. As we have seen, the NFT is particularly suited to the unique experience transaction.

Can NFTs change the wine business?

NFT should not change the structure of the product. There are other sectors, for example the banking world, the insurance world, the money world, the notarial world will be revolutionized by the NFT world.In the world of wine, what will change is certain financing methods, certain marketing methods. It may just add a new way of doing exclusivity. We know that wine is a product that likes the concept of exclusivity. We will be able to offer more and more rare experiences, exclusive experiences with wine.
We can only fear that wine will become even more speculative than it is today. This can be a good thing insofar as this speculation will benefit the producer much more, which is not necessarily the case today.

READ MORE How blockchain can change the wine supply chain?

The future of NFT in the wine industry

In the near future, and for the next 2 or 3 years, it’s going to be a bit of a mix between the Wild West and the gold rush. We’re going to see a lot of projects, a lot of initiatives, just like every major digital transformation.
But if we look further ahead, NFTs in the wine world will become something unavoidable, natural and will be part of all transactions, at least for premium wines.
In the coming months, we will see more and more projects emerge. The main thing is to stand out with innovative concepts, concepts – as in the case of Dom Pérignon – that will combine artistic creation, the creation of experiences, the creation of very exclusive products. We are going to merge all these exclusivities within the NFT. This will open up great opportunities for creativity, for conceptual or artistic creativity.