NO, WINERIES, BLOCKCHAIN WILL NOT PREVENT FRAUD

by Andrew Chalk

In a Texas AgriLife webinar about blockchain on Tuesday 10th December the impression may have been left that blockchain will solve the problem of fraud in the secondary wine market. According to cellar valuation expert Maureen Downey, one out of every five bottles in the secondary market is a fake. Winemakers suffer from this because consumers withdraw from the secondary market due to a lack of confidence. 

HOW NOT TO RUN A ZOOM CHAT

The webinar left the erroneous impression because the organizers did not know how to use Zoom. The creators of Zoom knew that it was a vast step forward from earlier webinar software but they also knew that the current version is still a pitiful substitute for in-person interaction. For that reason, they gave it a selective unmute feature that the moderator can use to unmute questioners so that their questions can elucidate, rather than be cut off. But the moderator refused to allow that. Questions are interrogative, so the three-by-one inch chat or Q&A boxes are not the right place for them. The chat is especially useless when it is restricted (as it was) to messages to the moderator and panel. Zoom’s creators put the Q&A in for that, Chat is for broadcast to everybody.

WHY BLOCKCHAIN WILL NOT PREVENT WINE FRAUD

If Zoom had been used as intended, attendees would not be left with the impression that the blockchain can prevent wine fraud. What they would have heard is that the blockchain was created for digital assets. With digital assets, the blockchain and its content are one and the same. Wine is not a digital asset. At best, a digital claim to a bottle of wine is the closest thing that it can contain. That means that the blockchain is always 100% correct. But the wine bottle referred to is a completely separate entity to the claim to it that is on the blockchain. When you, the consumer, pick up the bottle in a store you cannot tell if the inside of the bottle is what is claimed on the blockchain. It could be a counterfeit.

HOW TO PREVENT WINE FRAUD - BUT YOU MAY NOT LIKE TO PAY THE COST

Two workarounds are proposed to prevent this. I described them here. I find only one of them credible. The actual bottles must be sequestered (I called it the “prison system”), either at the winery or at a trusted agent. 

To repeat it…

“AUTHENTICITY APPROACH TWO -- PUT THE BOTTLE IN PRISON

The second approach is to never let the bottle leave the winery cellar, or that of a trusted third-party. For example, the London wine merchant Berry Bros & Rudd was founded in 1698, 78 years prior to the United States Declaration of Independence (presumably, to give the colonists time to buy their wine before battle). At several times in its history, Berry Bros has put its own reputation on the line to vouch for the authenticity of a wine or wines. The best known case may be its role as a bottler of Bordeaux for the UK market after the second world war when many châteaux were in dire financial straits and unable to do this on their own. I am unaware of any claim that they sold fake wine in the decades that they performed this role.

The formal name for this role in the crypto market is a custodian. The key requirements for the role are financial integrity, the incentive to monitor the wine, and solid financial foundations. The wineries themselves seem to me to be the ideal custodians, given their incentives to protect their brands, but have shown little appetite for the role thus far.”