The obvious answer is an NFT could enable the user to attach a digital contract to a physical item. Implementing an NFT via a QR code could potentially offer the ability to tie a physical good (the wine) to a digital record (smart contract on the blockchain). In theory, this could be used to provide a secure way to verify authenticity. Authenticity is vital in many industries but its of critical importance in the world of rare collectibles, especially wines. The wine industry is fraught with issues of verifying authenticity for rare and collectible vintage bottles. Counterfeiting of high value bottles or “fine wine fraud” is nothing new. As far back as ancient Rome, Pliny the Elder complained about it. And to this day, no one is immune – even billionaire Bill Koch fell victim to massive wine scamster Rudy Kurniawan. There was also the less well-known but perhaps more alarming Premier Cru wine scandal. Which one was worse? Tough call. In terms of money, John Fox (the Premier Cru scamster) cheated customers out of 45 million dollars making it the world’s largest wine Ponzi scheme ever. Even more incredulous, it went undetected for 20 years! The real question is how? The answer is actually very simple. The scheme was made possible by something in the wine business called a “pre-arrival” purchase. Due to their rarity, high end wines are often purchased prior to their arrival on the market. A “pre-arrival” purchase is a way to secure a bottle of “hard to find” wine. The time between the purchase and the arrival of the wine can vary widely. It’s not unusual to wait 2 years for a bottle to arrive. Buying a “pre-arrival” wine essentially requires implicit trust in the wine merchant. As a buyer, you’re trusting that the wine will arrive as promised, authentic and properly stored. You’re also trusting the merchant to hold your purchase money “in escrow” should something happen to prevent the sale. In essence, there is an implicit “trust contract” between buyer and seller. But the Premier Cru scandal was a complete violation of this “trust contract.” Customers paid for their wine while their money vanished. Similar to the Madoff ponzi scheme, new money coming in compensated for earlier money that had been siphoned off for the merchants personal use (in this case young girlfriends and a luxury lifestyle). The “pre-arrival” clients had no way of verifying if their money had in fact been transacted with the wine maker. As the wine merchant and middle man, John Fox held all of the power. It worked until it didn’t work. The scheme collapsed along with rest of the US economy in 2008. As soon as there was no new money coming in, there was no way to pay for any of the delinquent “pre-arrival” orders. Customers grew inpatient and angry. Lawsuits came next. And finally jail time for Mr.Fox. All in all, he served a total of 4 years following his release for “good behavior” in 2021.
In similar fashion, infamous wine counterfeiter Rudy Kurniawan was also released from prison in 2020. Apparently he was in the US illegally and there was a standing deportation order with ICE. Subsequently, Kurniawan was deported shortly after his release from prison. Yet, none of this has provided much help to the victims of either scam. In both cases, the perpetrators claimed to be bankrupt/destitute. Justice without restitution is a bitter pill to swallow. It certainly has made future investors more cautious. I would venture it has had a profound effect on the wine industry. I would never buy a “pre-arrival” wine. First of all, I don’t trust anyone enough to wait two years for the product. Secondly, by the time the wine arrives (if it arrives), I will have to “go on faith” as far as the quality is concerned. Most credit cards cover a purchase for limited time – two years is way beyond that time window. If the wine is fake or spoiled, what recourse do I have as a consumer. Nevermind that I may wait several years before opening the wine. Lots can go wrong. There clearly is a need for a product that can address these issues.
Imagine an iron-clad way to reduce or prevent counterfeiting. By using a digital token- an NFT linked to the product. One expert I spoke with suggested physically integrating the NFT token into the cork. Theoretically, a buyer could purchase the NFT while the wine is being held at the vineyard and stored under optimal conditions. Wine storage is always a concern when reselling wine; when a wine hasn’t been properly stored or handled, it can diminish in quality or spoil. NFTs could potentially offer more than just a “fancy QR code.” NFT labeled wines could potentially be more desirable in the hands of astute collectors. Alternatively, whenever a new technology emerges, new and unpredictable ways to scam and commit fraud may occur as a direct result. What if someone finds a way to duplicate NFTs and insert them into counterfeit bottles, or reuses an authentic NFT ?
Wine NFTs have another potential application — the ability to track a wine as it is sold and then resold. In theory, collectors would have complete access to the wine’s provenance. Privacy becomes a potential concern in this situation; if the NFTs can be traced, then so can their ownership. In theory, that should be hidden via the blockchain but is anything ever really untraceable ? To prove lineage, the most recent owner would need to show how many times the wine had changed hands (and with whom) to ensure authenticity. If not, the true value of the NFT token would be the ability to completely bypass that step. The true test will have to happen IRL. Just like the internet, we never could have predicted even half of what happened after the invention of the world wide web. We’re not even 100% sure who invented it. Al Gore? Or who invented Bitcoin. Satoshi Nakamoto anyone ? Will NFT’s radically change the wine world ? Only time will tell.
