In the eyes of its critics and those who are only aware of it thanks to pictures of apes and punks on Twitter, the non-fungible token [NFT] industry feels totally ephemeral and somewhat frivolous, lacking any real utility for real people or businesses. Last year’s downfall of the NFT art space and a number of highly-publicised cash grabs and scams has had a chilling effect on the technology and ended up overshadowing not only how the technology works but also the benefits that NFTs can provide.
That can (and should) change as the industry matures. NFTs are already bigger than simply representing ownership of a unique digital asset, and the industry must communicate that clearly as it moves forward. Utility needs to lead the messaging, and this utility is already manifesting across industries – particularly luxury spirits.
NFTs can guarantee authenticity and traceability, which could help solve some of the high-end spirits category’s biggest safety and fraud issues.
Spirits-backed NFTs correspond to ownership of real-world assets, specifically bottles and casks. This means the token has real value in the underlying asset, and that it acts as the digital deed of the product, thus confirming your right to the bottle or cask – the opposite of a quick flip of an investment. By storing that information on a digital ledger, producers and brands save time, streamline trading, open up opportunities for under-valued boutique brands, and provide public records efficiently. That’s genuine value and utility.
Despite the squeeze on incomes with inflation and global price increases, the luxury spirits market is expected to reach US$123.4bn by the end of 2027. Premiumisation has been a key propeller of this growth as consumers, especially Millennials and Gen Z, gravitate towards high-end liquor. These generations approach party culture and social drinking differently from previous generations, and they’re willing to pay for prestige, high-quality spirits, as well as alcohol content minus the high calories. They’re also digital natives who don’t blink twice at tech integration, and they expect a streamlined online experience.
This sets the stage for NFT and blockchain integration within spirits.
Even so, the category isn’t an obvious choice for NFT and blockchain integration. It’s steeped in tradition, dominated by established brands, and reliant on centuries-old practices that still require drawn-out purchasing, buying and selling times. When selling a whisky/whiskey cask, for example, the process involves a manual paper system of sending delivery orders between the buyer, the seller and the facility (usually a bonded warehouse) that holds the asset. It’s a process that can take weeks to complete and exposes consumers to clerical errors and misplaced assets.
Like many luxury products, high-end spirits is subject to counterfeiting. In the EU alone, the industry loses roughly EUR1.3bn [US$1.4bn] in sales every year due to fake wine and spirits. Anti-counterfeit measures, such as code number verification, haven’t stopped counterfeiters from producing plausible replicas with reused bottles and identical cap seals. Spotting the copycats isn’t easy.
That’s a problem since spirits collectors value authenticity and transparency across a distiller’s ingredients and recipe, distillery location, ageing and bottling process. High-end spirits are an investment that encompasses the actual cask, storage, insurance and shipping fees for a bottle.
Counterfeits, along with missing information, are the primary causes of concern to collectors – and it’s harming the spirits industry. NFTs can fix this.
Blockchain solutions have now matured, allowing the industry to modernise its outdated processes, enabling a new era of transparency, provenance and product authenticity. Using NFTs as a digital deed to prove ownership of a cask trumps the existing inefficient, time-intensive record-keeping systems for operational efficiency. Customers have beneficial ownership of their allocated assets and sellers can transfer ownership of both their digital deeds and the physical product almost instantly on spirits-backed NFT marketplaces. These marketplaces offer an automated and streamlined verification process that will transform the process.
By linking these casks and bottles to NFTs, with all data written as an immutable record on the blockchain, buyers can easily prove the legitimacy and authenticity of the spirit. Imagine uniquely marked bottles and casks connected by QR codes or NFCs that buyers can scan to access unrivalled detail about their bottle or cask. All information is linked to a digital database of time-stamped records or transactions, giving buyers the ability to prove the provenance and integrity of the supply chain.
The first brands to adopt these will likely be smaller, boutique distillers. They will lead innovation simply because it’s easier for them to implement new technology and processes. Established brands are bound to follow suit.
NFTs bring a whole new level of authenticity, provenance and transparency to luxury spirits that go beyond improving the ownership process and proving authenticity. Introducing NFTs into the production process to record source ingredients, materials, processes and energy usage streamlines reporting procedures, ensures in-depth product knowledge and offers a verified, less siloed solution to inventory management.
Using NFTs to improve accessibility for younger and older generations as well as appealing to both NFT and whisky lovers is how this decades-old industry will remain resilient. This is only the beginning.
Nimantha Siriwardana is the co-founder & CTO of Metacask, the marketplace for spirits-backed NFTs. Metacask also offers the spirits industry’s first fully-integrated inventory management, asset tracking, and marketing solution. Nim has over 20 years of experience in delivering technology solutions and previously worked for Goldman Sachs and Source Capital AG.
This article was initially published by The Alcohol Professor, a US-based online “homeroom” that covers beer, cocktails, spirits and wine along with travel tips, book reviews, bar reviews, recipes and videos.
