If you have been too busy being an alcoholic to follow the news and understand what this nerdy Bitcoin-crypto thingamajig is, this post is your chance to redeem yourself and pretend to be someone who reads.
Blockchain technology essentially involves a series of registers (or “blocks”) that hold transaction information about a previous “block”. The information is usually presented in a publicly-accessible ledger, but which cannot be altered without authorisation. This means that the information can be shared but not altered.
Terms like cryptocurrency, blockchain, Bitcoin, Dogecoin and more recently “NFTs” have been trending the headlines on financial news. A number of seemingly non-technology-related businesses jumped on the crypto bandwagon, being so keen in affiliating themselves with blockchain technology or re-branding themselves as a blockchain-related businesses in naked attempts to woo investors. The most absurd of reports was of a New York iced tea company that simply added “Blockchain” to its company name in 2017; a name change that made its stock jump over 200 per cent (spoiler: it was uncovered in 2021 that the company had no real intention to transit to producing any blockchain-related technology).
Closer to our more familiar domain of barley and single malt, the whisky industry is also beginning to embrace the blockchain in various ways, from accepting crypto payments, to selling rare casks as “NFTs”, to combating counterfeits.
Crypto-based fundraising and payments
(Image Source: Whisky Advocate)
A small archipelago with cold windy climate about 300 kilometers north of Scotland recently received its first whisky distillery. The Faroe Islands, which actually belong to Denmark, is home to the Faer Isles Distillery. The distillery was only established in 2020. With the Faroe Islands' much saltier, windy weather than in Scotland, the distillery aims to produce whisky of similar character to scotch, but with a much more maritime flavour profile.
Interestingly, the building of the Faer Isles Distillery was largely crowdfunded with investors being able to own shares in the company. The distillery is also the first whisky distillery to raise funds partially by selling its shares represented by ERC20 ETH tokens (I understand that Ethereum was essentially designed to enable use with smart contracts, with lower security or fraud risks.). The company says that their shares are much more liquid and easily tradable than normal shares on the stock exchange, and it hopes that even those that are not interested in whisky will be attracted to owning a tokenised share of the company.
When the distillery is able to realise its whisky (note: we probably need to wait till at least 2023), the distillery intends to accept crypto payments for its whisky.
What I think: I’m not quite sure whether raising funds with tokenised shares fundamentally makes sense, but perhaps the hype around anything blockchain related helps with the fund raising.
Investing in “tokenised” whisky
Financial news media have also recently exploded with headlines on seemingly ordinary digital art being sold for baffling prices as non-fungible tokens (or “NFTs”).
Post by @Jerrynews on Instagram
Whiskyland has also decided to cash in on the NFT craze. In the whisky industry’s first auction of its kind, the Irish Kinsale Spirits Company offered for sale ownership in a “tokenised” barrel of 20-year-old single malt, the ownership represented in a NFT. The sale fetched US$100,000, far exceeding the company’s expectations.
The cask auctioned by Kinsale (Image Source: Opensea.io)
What is a NFT you say? NFTs are the latest investment craze to grip the markets, and are a one-of-a-kind digital asset that has a distinct cryptographic token that cannot be replicated by fraudsters. The token would be recognised as a certificate of ownership for either virtual assets (e.g. “Charlie Bit My Finger.wav”) or physical assets (e.g. a Damien Hirst sculpture) – and this means that the said asset has been “tokenised”.
So when someone buys the tokenised asset in question (in this case the barrel of Kinsale’s whiskey), his ownership is irreversibly recorded on the blockchain, allowing anyone to verify that he owns the items. While the public can still view a virtual or physical asset, the real buyer has the status of being the official owner – a kind of digital bragging rights. Unlike fungible cryptocurrencies (e.g. Bitcoins), a NFT is non-fungible and not interchangeable with another NFT – this feature makes NFTs well-suited to represent ownership in unique or limited-edition assets.
In Kinsale Spirits’ case, the good sold is a rare cask of Irish malt whiskey left from its original distillery in Cooley. The company describes the whiskey as a beautifully smooth liquid, with a soft, yet sweet, candy flavour, some lovely fruity character, particularly of sultana and red apple, with a hint of ripe banana, and that it is this is a rich whiskey with great body and a very long finish.
We do not know who the successful bidder of the cask is, apart from the person’s username: lds1080. Usually, the buyer of an NFT would not receive the physical item because the buyer usually intends to re-sell the NFT. Only the final buyer of the item will ask to receive the physical cask.
What I think: Allowing retail investors to invest in whisky is by no means a new concept. There are many cask ownership programs offered by companies that allow retail investors to purchase actual casks of whisky, and also provide a platform for them to sell the whisky to other retail investors. However, tokenisation of whisky as a NFT makes the process of reselling to another buy much more convenient, and actually makes sense.
Incidentally, the same feature of blockchain that allows ownership of goods to be irreversibly recorded also allows sellers of luxury goods or expensive objects to combat counterfeiting. The transparency of the “ledger” on a blockchain allows provenance of an item to be traced from one past owner to another past owner, to the original manufacturer of the item. This can be applied across several industries to allow buyers and sellers to, with peace of mind, trade high value assets- such as wine and spirits, gemstones and other luxury goods.
Prada, Richemont and LVMH have formed a blockchain consortium to provide customers of their luxury goods an extra seal of authenticity. (Image Source: Prada Group)
Counterfeit whisky might not be an issue most people have paid much attention to. However, it is becoming an increasingly prevalent problem with potentially life threatening implications.
Based on the experience of Dr Gordon Cook, a researcher at the Scottish Universities Environmental Research Centre (SUREC) in Glasgow, about 40% of secondary market whisky purporting to be made between the 1800s and 1950s are actually fakes or had been distilled in a different year than the one claimed. Radiocarbon dating has shown that a Laphroaig labelled 1903 was actually distilled around 2011, and a Talisker supposed distilled in 1863 was bottled after 2007.
Generally, counterfeiters are drawn to rare whisky bottlings with very large price tags, such as the Ichiro’s Malt Ghost series from Japan – No. 9 is shown here. (Image Source: Bonhams)
Even more concerning would be the health risks. 2 years ago, Russian media covered several stories of mass poisoning in Krasnoyarsk, Siberia, caused by fake Jack Daniel Whiskey’s bought on the Internet. The spate of poisoning has sent many to the hospital and killed more than 30 people.
In the whisky world, several measures are underway to cut down on counterfeits.
(Image Source: SUREC)
Early last year, the SUREC Radiocarbon Laboratory partnered with London-based blockchain company Everledger to produce the first age verification system for whisky. SUREC researchers will begin verifying the age authenticity of rare bottles of whisky by drawing a small sample of whisky from the cork and analysing it using carbon dating. The information is entered into the blockchain to create an immutable digital record certifying the whisky’s age and provenance. Each bottle would then be assigned a unique digital identity, and be fitted with anti-tamper bottle closures which can be scanned by a smartphone to show the provenance of the bottle.
In the Scottish Highlands, Ardnamurchan Distillery has already embraced blockchain technology much earlier in 2017, where it began to print scannable QR codes on each of its bottles to give consumers the ability to trace their purchases from retailer, to producer, to the barley fields. Not long after, hip Lowlands distillery Ailsa Bay Distillery also joined the party with a similar offering.
Scanning the QR code with a smartphone directs the buyer to a certificate of authenticity, with access to online data telling the “story” of the whisky from the field where barley was sourced to the individual who bottled it and the dates of production. All of these data had been irreversibly entered into the blockchain by technology firm Advanced Research Cryptology (arc-net), which allows the sharing and authentication of the bottles’ details.
What I think: Combating counterfeits appears to be one of the most practical and legitimate applications of blockchain technology.
Of all the above problems that blockchain is intended to solve, I think that combating counterfeits is probably the most worthwhile endeavor taken by the whisky industry.
The features of blockchain technology do hold great potential and great value in preventing fraud and reassuring us that our prized collection of whisky are in fact genuine goods, and would not end up poisoning us.
I can also appreciate Kinsale’s cleverness in tokenising whisky for investment purposes. Rather than purchasing the actual barrel of whisky, a tokenised barrel of whisky can be purchased and sold to a very large number of audience in a very seamless way. This assures investors that the whisky NFT can be easily traded on a cryptocurrency trading platform, and gives them the peace of mind to bid higher prices.
Yet, there is a vibe I’m getting that certain producers do not have a genuine interest in leveraging blockchain to benefit the industry, and merely intend to ride on the hype and generate some free press for their business. Does Faer Isles Distillery really benefit much more by using a blockchain-backed securitized token to raise money? Does Ardnamurchan Distillery seriously believe that counterfeiters would take the trouble to counterfeit their inaugural release that costs no more than $150 a bottle? Ardnamurchan and Ailsa Bay’s QR codes are also not on a tamper-proof bottle seal, and this seems to defeat the purpose of the entire project- wouldn’t people along the supply chain be able to replace the contents of the bottle while the QR code certification remains intact?
Red herrings and marketing stunts aside, the introduction of blockchain technology to the whisky industry should be an absolute win for consumers. We can obtain more transparent information about our most valuable whiskies more conveniently than before. We don’t have to worry about it killing us, either.
I am by no means a blockchain or cryptocurrency junkie or expert. What do you think of my views above? We would love to hear from you.