How Will Blockchain Technology Change Wine?

By: Maureen Downey

16, October, 2018

Categories:

Blockchain - Retail -

  • 7
  •  
  •  
  •  
  •  
  •  
  •  
    7
    Shares

Interview with wine counterfeit expert Maureen Downey about the foreseeable future of applying Blockchain Technology to the wine industry.

Maureen Downey is a wine fraud specialist who played an important role in the Rudy Kurniawan investigation, the greatest wine scam in US that shook the wine world a few years ago.

In her never-ending quest for a safer wine world where collectors would never have to buy a fake bottle again, Downey launched the Chai Vault, an innovative solution using Blockchain technology for securing the authenticity and provenance of fine wine.

Once authenticated through The Chai Method® (TCM®), a wine can be virtually tracked and certified on the Blockchain via a permanent digital record of provenance that can either be kept private or made public for marketing purposes.

I’ve asked Maureen to tell us more about this new technology, and how she thinks the Blockchain may change the future of wine.

You’ve been a wine authenticator, tracking down fake bottles since 2000. How is the Blockchain technology about to change things for wine collectors?

Maureen Downey: For two decades, I have been inspecting bottles for authenticity and condition (sadly, the only measure of provenance that could be relied upon) on behalf of auction houses, private collectors, retailers, restaurants, hotels and casinos, and have established a proprietary, systematic approach to inspection, – The Chai Method™ (TCM™).

In that time, I have been plagued by the fact that following the inspection of a bottle, the only findings which could be reported in any way that was transferable, was a counterfeit finding reported in a formal written report. Due to fact that inspected authentic bottles can be refilled or altered after inspection, there has been no way to positively report a bottle to be authentic and have that authentication mean anything after I left the room beyond opaque “trust.”

“there has been no way to positively report a bottle to be authentic”

Further, each time a bottle is presented for sale, it must be re-inspected, as if for the first time, expending resources and man hours to be spent time and again by resellers of fine wines. There has been no way to report authentic bottles in any meaningful, indelible or transferable way.  Sadly – even those bottles deemed counterfeit end up back in the supply chain 95% of the time as vendors take them back and resell them.

Today, there is nothing beyond “trust” vendors can offer to ensure buyers that their bottles are authentic, or to describe a bottles provenance.

“Property of a long-time client” is as much as most vendors will share. Even if a receipt is produced – a consumer must “trust” that receipt belongs to the bottle in question and not one of an infinite possibility of others. Unfortunately, paper and electronically shared assurances, “certificates of authenticity,” can be, and often are, used to substantiate authenticity of bottles other than that which was inspected, or total counterfeits and the certificates themselves can be altered or counterfeited. There is no way to track a bottle’s authenticity in a way that it can be shared, while keeping a previous owner’s information confidential. It is this opaque “trust” which has created victims of so many fine wine and spirits buyers.

“Many anti-fraud “solutions” used by producers today are neither robust, nor layered.”

To complicate matters, producers are so tight-lipped about the anti-fraud solutions they use – most are rendered useless. If vendors much less consumers have no idea what to look for to ensure their bottles are authentic – how is even the best anti-fraud helping consumers at all? Sadly – invisible ink can be counterfeit reproduced. We are already seeing this in the market. An authentic bottle can also be refilled, displaying authenticity to anyone looking. Single layer tech, especially those that give more of visual reassurance than anything else – like prooftags- can be reapplied, or 3-D printed to substantiate counterfeits.

Finally, all of these measures require a potential buyer, or their agent, to be in direct proximity of the bottle to inspect and assure authenticity, IF they even know what to look for, and this rarely happens prior to purchase. So, buyers the world over are stuck shelling out money – THEN having bottles inspected and dealing with the aftermath – which can be impossible when you have vendors, like Geneva Auctions, who refuse to help buyers to whom they have sold counterfeit bottles.

The most robust antifraud, if not connected to a meaningful ledger which can be accessed by a potential buyer -BEFORE they make a purchase- is nearly pointless. But Blockchain certification can change this and address all the issues at hand.

The Chai Vault solution is

  • Layered
  • Immutable
  • Timeless
  • Transferrable
  • Proof of Both Authenticity and Provenance
  • Independent
  • Consumer Empowering

 

Top wine estates already use sophisticated technologies to track provenance and authenticate the bottles that have come out of their cellars in recent years. What does Blockchain add to these in terms of security?

Maureen Downey: No- They don’t. They want to, but currently, top estates are NOT tracking provenance of individual bottles, and it is often people like me that alert producers to the new counterfeits we are finding in the markets.

They really do not track provenance as one would think they do. And you cannot blame them – they are focused on making great wine, not investigating counterfeits and fraud! Just look at the size of the gray – and black markets for fine wines and spirits! I have spoken to a lot of producers – they track the logistics of the supply chain, but almost none are tracking at a bottle level – and those that are, are not incorporating that data in a useful, meaningful way.

Unless a complete data set is integrated into a bottle’s ledger, including serial number and to whom that bottle/case was sold, which can be accessed and made useful to producers and to consumers – it’s just another layer of useless tech. Further, the ledger must contain data representing a combination of both authenticity and provenance, and that data must be accessible by a potential buyer in advance of a sale. Without marrying the data to the bottle and empowering consumer purchases, blockchain is not a useful tool for producers or consumers. This is what so many are getting so wrong in incorporating the blockchain as a solution to anti-fraud in the wine and spirits sector.

Today no solution other than Chai Vault certification is layering physical bottle, tech, bottle data, images and provenance documents about that bottle, in a blockchain ledger to create a truly robust, useful solution which will empower consumers to make only risk adverse, information-based purchases. Chai vault is also unique in that is empowers producers to see where their bottles are leaving legitimate supply chains and entering grey and black markets.

We understand there will be a track record every time a bottle changes hands/is sold. But how will the end consumer know and access this information? Is there already or will there be an app for this?

Maureen Downey: I have created the Chai Vault Solution.

By layering low and high-tech assets as well as integrating immutable blockchain technology, we have been finally able to encompass all the criteria I have wanted (Layered, Immutable, Timeless, Transferrable, Proof of Both Authenticity and Provenance, Independent, Consumer Empowering) in an authenticity and provenance tracking solution.

Chai Vault certification will change how fine wines and spirits are traded by empowering consumers to make well informed, risk averse purchases. We can now definitively authenticate secondary market bottles and display the positive results by certifying bottles in the blockchain, and by clicking on the ledger’s URL any consumer can see the bottle’s Certificate of Authenticity and Provenance. Importantly, the authentication remains accessible and thus carries forward for the entire life of the bottle.

Because provenance and authenticity are inseparable, Chai Vault certification addresses provenance as well as authenticity. An individual bottle’s blockchain certificate displays all provable provenance in that bottle’s history, alongside the authentication date, location and name of the independent, TCM™ Authenticator. The ideal provenance for any bottle, including those in the Chai Vault, is when the bottles can be traced back directly to the producer. Thus, bottles certified in the Chai Vault at the time and place of production, by producers will carry even more value in secondary markets. Each time a bottle changes hands, the provenance is updated, and ownership is transferred.

“The next best thing to a bottle being certified at production, is being certified with direct provenance.”

Vendors and distributors who sell to consumers having received bottles direct from producers, importers or negociant can create Chai Vault blockchain ledgers for bottles with proof of purchase and shipping – thereby substantiating the bottle’s direct provenance. The consumer buyer is sold the bottle, and their Digital Vault, online account of all certified bottles, is updated to include their new inventory and the proof of its impeccable provenance and authenticity of their purchase.

In the secondary market, retailers, auction houses and brokers can either have an in-house authenticator trained and licensed as a TCM™ Certified Authenticator or hire one of the licensed TCM™ Certified Authenticators, located all over the world, to inspect wine and spirits bottles. Once inspected, authentic bottles are certified in the blockchain generating a unique bottle URL which points to a Certificate of Authenticity & Provenance. If an original case, the bottle URLs can be linked to substantiate authentic cases, in stark contrast to the industries current practice of “Frankenstein-ing” cases together – combining bottles from different provenance sources and representing them as “original.”

Vendors then place the URL, or bundle of URLs, online with retail bottle offerings or as part of auction sale catalogues, on their own sites or on their listings on Wine-Searcher.com – who is going to display Chai Vault certification- empowering consumers to view the irrefutable proof of authenticity with all provenance information about bottles, prior to making a purchase.

Once purchased, the vendor inputs sales information and changes ownership to the buyer. The buyers see this as an addition to their online Digital Cellar, where they can add cellar locations, notes, scores details about the storage conditions and any other information desired. They can also attach the certificate URLs in existing cellar management systems.

Each time a bottle is traded, the relevant sale information is added to the bottle’s ledger, building the provenance trail of the wine or spirit, or the case (which is a bundle of single bottle ledgers). A version of this trail is then visible in the Certificate of Authenticity and Provenance.

DIGITAL CELLAR: Owners of certified bottles will have access to their own Digital Vault, which will contain the data on all their bottles. The addition of storage location information and conditions, even images of storage conditions, can be added to the ledger.

NOTE: While vendor names, sale dates and the name of the person updating the condition report will always remain unencrypted, if a bottle owner makes a ledger public, they can choose to encrypt all other information.

Permissions are controlled by the bottle owner: Making bottles available for sale, rendering the bottle’s URL useable by a vendor; Personal information including owner name and contact, tasting notes, storage information…

The fields never encrypted include:

  • Date, location and the name of the authenticator.
  • Dates, locations, the name of the authenticator updating conditions.
  • Vendor company that sold the bottle, with date, the relevant sale information and documentation. (Auction Lot #, Private sale, Online Retail sale….)

If every bottle of wine is tracked with a near 100% accuracy, does this mean you, as a wine authenticator will be out of a job soon?

Maureen Downey: That is the goal! I long for extended beach holidays, away from cold damp wine cellars. Unfortunately, I don’t see that happening anytime in the near future.

Not every bottle will be inputted at production, so there will always be a need for authenticators. Bottles will also always fall out of the supply chain and need inspecting. When it comes to Chai Vault certification, there are many vendors who will never be licensed user: Any bad actors will be barred from using the solution so people who have bottles purchased from bad actors will always need inspection by a licensed, TCM™ Certified Authenticator.

And, after a certain period of time, when a bottle is represented for sale, there may be a flag that the bottle must be re-inspected, if only to update the condition report and verify the ledger. Thus, for the past year, we have started training people all over the globe in my authentication methods and protocols and use of the Chai Vault. So far, we have a small army of 23 of us all over the world. We will need more though, as this solution is going to change the way fine wines and spirits are traded!

 

Does the introduction of the Blockchain technology also mean that wine counterfeiters, the Kurniwans of tomorrow will be software hackers instead of expert wine label ‘artists’ like they have been?

Maureen Downey: Could be. So far blockchain ledgers are impermeable. We have systems in place to prevent the manipulation of ledgers in the Chai Vault, and oversight of created ledgers. The TCM Authenticators and licensed vendors have strict procedures to follow, and there is a lot of oversight. We will catch bad actors quickly, and if there is a breech, we can check back through all their ledgers and spot-check/reinspect bottles if necessary.

 

Hacked Coravin devices are reportedly now used to replace the content of a wine bottle without even pulling the cork out. Is there a solution for this?

Maureen Downey: YES – we have anti-tamper chips for both the primary market (to be applied by producers) and secondary market (to be applied by TCM Certified Authenticators. This is a vital part of the layering of the Chai Vault solution!

 

Finally, in what areas — other than identifying counterfeits— of the wine industry do you see the Blockchain technology changing the landscape in the wine industry?

Maureen Downey: The possibilities are endless! And they are multifaceted for all aspects of the supply chain, not just producers.

Chai Vault certified wines and spirit bottles will benefit every aspect and sector of global markets from production to consumers because it is:

  • Layered: The Chai Vault utilizes both low tech and high-tech applications, layered for security.
  • Immutable: Having the ledgers in the blockchain ensures they can never be corrupted. Assurance of Authenticity and Provenance are fact based, not trust based.
  • Timeless: Ledgers last for the life of the bottle.
  • Transferrable: All authenticity and provenance data transfers to the new owner when a bottle is traded.
  • Proof of Both Authenticity and Provenance: The Chai Vault addresses both.
  • Independent: Third party authentication increases consumer confidence.
  • Consumer Empowering: Assurance of Authenticity and Provenance is transparent, empowering the consumer to verify data on their own, without having to “trust” the seller or the seller’s representative, prior to making a purchase.

Chai Vault Benefits: Producers

Brands are protected, Consumer loyalty is ensured, Logistical oversight is improved.

Producers who adopt Chai Vault certification of bottles at production will:

  • Benefit from the opportunities the blockchain provides which include an almost endless bundle of inventory tracking and logistical oversight services to producers allowing for unrivaled oversight of their product movement throughout the world.
  • Be empowered to more easily recognize the areas of weakness where counterfeits are entering the market.
  • Be empowered to more easily recognize where supply contracts and allocations are being violated.
  • Easily authenticate bottles from across the globe, without having to be in proximity to those bottles.
  • Be confident their bottles being enjoyed are not only authentic, but of sound provenance.
  • Benefit from brand protection and the resulting increased consumer confidence.
  • Improved inventory management in production facility, storage warehouses…
  • Oversight of logistics in supply chain.
  • Lower insurance premiums.
  • Eventually – oversight of heat tracking data thorough shipping, and the life of the bottle!

 

Chai Vault Benefits: Vendors

Bottles are vetted by an independent third party, trained in the TCM™ Inspection and Reporting Method, and only authentic and directly sourced bottles are sold.

Vendors who adopt Chai Vault certification of bottles will:

  • Be recognized as global leaders in fighting fraud and showing their commitment to authenticity and only the best provenance, to their clients thereby building brand confidence.
  • Lower operating costs by lessening the resources needed to vet purchases, authenticate, and re-authenticate bottles each time they are offered, while increasing customer confidence and loyalty.
  • Mitigate business and brand liability as the Chai Vault authentication and certification is an independent, third party application.
  • Lower insurance premiums.
  • Revenue Generation: Be able to charge clients for Chai Vault certification on their purchases, thereby making Chai Vault certification a profit center.
  • Benefit from cutting edge inventory tracking and management services -especially useful for large and multi-outlet companies.
  • See an increase in the bottom line due to increased bottle values, combined with increased customer confidence and loyalty.

 

Chai Vault Benefits: Consumers and Collectors

Verified, transferable, information-based purchases and a more valuable, transferrable asset.

Consumers who adopt Chai Vault certification of bottles will:

  • Finally see proof of authenticity and the provenance of a bottle(s), prior to making a purchase mitigating risk and possible loss of investment.
  • No longer be plagued by the unknown and the possibility of purchasing counterfeit bottles.
  • No longer be required to rely on an opaque trust offered by vendors.
  • No longer be required to rely on opinions of a party with significant financial interest in the sale.
  • Not have the headache involved in recuperating losses from bad purchases.
  • Enjoy lower insurance premiums.
  • Realize a 20-30%* increase bottle value in future trades, as well as in overall collection value of all certified bottles.

*A premium of 20%-30% is frequently realized in offerings of superior and direct provenance in current markets, notably the auction market.

 

Original article posted on Social Vignerons

Maureen Downey, Founder of Chai Vault, will be speaking on the Keynote Panel ‘What does the future hold for blockchain technology in the luxury goods industry?’, Day 2 of the Blockchain Expo North America.