As the Chief Operating Officer of the London Technology Club we get approached by many entrepreneurs with opportunities promising the ‘next big idea’. Every now and then we get hit by a wave of very clever people all saying something similar, often driven by progress in technology coupled with an increase in clarity on what that technology could make possible…
Then in retrospect that shift gets given a name, such as the ‘sharing economy’ (think Airbnb, Lyft ride sharing and Lime scooters) and the gig economy (think Uber, Deliveroo food delivery, Fiverr for design and so on).
We are now in a phase called the ‘creator economy’: a software-facilitated economy that allows creators to earn revenue from their creations through many, normally digital, channels.
The creator economy was given a large shot into mainstream culture in 2021 with the birth of ‘NFTs’ as people began to get to grips with a new underlying technology. It’s hard to ignore a market that grows from US$100m in 2020 to US$21bn in 2021. In early 2022 we have been inundated with approaches about the practical uses and commercialisation of NFTs… many of them from the wine world or tech entrepreneurs with a passion project focused on wine.
NFTs explained
NFT stands for non-fungible token. Put simply it’s a unit of data stored on a digital ledger (aka a blockchain). It is something that cannot be copied and is non-interchangeable. Example NFT data units include digital files such as photos, videos and audio clips. The data unit, referred to as a token cannot be copied as it is uniquely identifiable therefore it is like owning an original in digital form. An NFT can only have one owner at a time. So, what we have seen of late has been the likes of digital artists creating new pieces of digital artwork and selling them as NFTs. The most famous to date has been the artist Beeple selling an NFT via Christie’s auction house to a single owner for over $69m.
Someone can buy an NFT and own the work, just like an art collector can buy an original piece of physical art, and as it’s on a digital ledger, its origin is irrefutable. The fundamental power of NFTs is the authentication of ownership when transferring the assets in a transaction.
What’s also driving excitement is that an NFT can be sold and traded. Included within a trade is a smart contract or protocol. The original creator or owner can set rules that if their asset is sold onwards, they can receive a portion of the sale (a royalty) every time the asset is transfered to others. The sale or trade is recorded on the blockchain and therefore the sale transfer of ownership of that digital unit is authenticated. It is a certificate of authenticity that in theory cannot be hacked.
It has led to many people looking at what assets (especially scarce assets or collectibles) can be turned into digital tokens. ‘Minting’ is the process of tokenizing a digital file with cryptography. Tokenization is the process of turning an asset into a digital token that can be moved, stored and recorded on the blockchain.
Take the NBA basketball in the US. They realised that they had unique video highlights of what they called ‘Top Shots’. The footage is digitized in a limited amount to create scarcity. It’s like with previous collectibles such as trading cards, consumers have fun collecting and exchanging scarce items. With digital assets there is no risk of damage and a reduced risk of theft… the NBA effectively still own the intellectual property and copyright and take a cut of every sale on the blockchain (and to date there has been over $600m in NBA Trop Shot NFT sales)… and for every single Top Shot moment that’s transacted there is a 5% seller’s fee shared (between Top Shot, the NBA and the National Basketball Players Association).
What many believe is a barrier to adoption is the nervousness about blockchain or crypto currencies. For example, Ethereum is the first blockchain to support NFTs and the most widely used. Just like there was a shift in consumer behaviour from buying in person to buying online, a new hurdle of trust will soon be overcome in terms of buying digital goods or NFTs just as easy as buying a t-shirt online. Don’t be fooled into thinking this is something just for ‘digitally-native’ early adopters nor niche Silicon-Valley crypto-tech startups… the big boy corporates are moving in. This was a mission statement from Mastercard recently “Currently if you want to buy an NFT, you need to open a crypto wallet, buy cryptocurrency and then use that to purchase your NFT. This is far from ideal from those who are outside of the cryptocurrency space. We want to change that…”.
NFTs are not small business. Nearly $41bn was spent on digital assets in 2021 by mid-December just on the Ethereum blockchain. To put into context, traditional global art market sales were estimated to be $50.1bn in 2020…
What is moving fast into mainstream now are NFT marketplaces (online platforms where you can create, buy and sell NFTs easily- often with just one click). The future is that digital assets such as NFTs will become as normal as traditional ones as people continue to move more and more of their attention and time towards a digital life… (think how normal it is for millions of kids to play in virtual worlds like Roblox and Minecraft). Not that there isn’t a healthy dose of scepticism and practices of what early adopters and crypto enthusiasts call ‘FUD’ (Fear, Uncertainty and Doubt) around the whole NFT space. Many believe the current conditions are symptomatic of the next unsustainable digital gold rush post the crypto currency craze. But on the other side of the coin, many believe everyone with an internet connection will own many NFTs by the end of the decade.
NFTs and wine
How much of an impact will the digitisation of assets have in the world of wine? We believe NFTs (or some future version of) will enhance wine collecting, investing, drinking, experiencing and sharing. What we shall deduce, is that as the original creator, the craftsperson or the ‘minter’ could benefit the most…
This is best explained by thinking about the life of a bottle of wine….
We start with the winemaker. Let’s use the iconic Bordeaux estate Petrus as an example. Upon producing their (on average) 30,000 bottles of wine, the Chateau can create a digital twin for each bottle. Each bottle can be ‘minted’ as a unique digital token. The NFT is a digital document that can identify one true owner of the bottle of wine as a digital product.
The estate immediately has a database of every bottle of wine its produced for that vintage. It can add during the bottling process a tamper proof seal and tag system such as vinID that eliminates the threat of the original being drunk and refilled as well as counterfeited bottles. According to Sebastian Schier, Managing Director of vinID:
“The value chain should start with vintners. They are the best authenticator as well as the actual creator of the physical product. It is paramount that each NFT is immutably linked to a respective bottle of wine”.
The estate can hold the database of all the bottles it has produced. In the future anyone in possession of the bottle will be able to check that the bottle is authentic and, if allowed, see its history- for example how many times its changed hands on the secondary market. All information about the unique bottle can be immutably linked to the token. The NFT is an authentication of a certificate, a chain of custody of a bottle of wine.
Additionally, the NFT can be used to provide engaging content to the customer from the supply chain that formed part of the making of the wine (cork, bottles, pesticides, methods- providing proof and provenance) to tailored content from the winemakers. What then is required is the interface between the digital and real world. These already exist...
Solving a problem
A major challenge expressed to me by many of the top grand vin is that once the bottles leave their estate, they have limited knowledge of where they go – who they are sold to and when they are drunk.
A winemaker often has no way of knowing for example how many bottles of wine for each vintage are still in circulation or how to work out who owns or drinks their wine. NFTs are anonymous so it doesn’t mean the winemaker would know exactly who would be buying the wine unless they chose to reveal themselves.
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