Wine Tokenization

November 11, 2021

With the introduction of smart contracts, the real use of blockchain just saw its purpose go beyond only payment networks. From games to financial applications, enterprise-grade services to digital collectibles (NFTs) almost everything can be built on the blockchain. And the reason for this is that the blockchain provides one of the most robust, secure, fast, decentralized and transparent networks for building applications. The wine industry is one that has taken advantage of this and is also now on the blockchain, all thanks to tokenization.

 

When an asset or security is tokenized, it becomes a string of code and is forever stored on the blockchain. The holder of the token then becomes the owner of the asset, physical or otherwise, that the token represents. In this case, the tokens can represent wine, although it is not limited to just that. They can also represent a mortgage, commodities and other physical assets like collectibles.

 

Based on research done by experts, the global wine industry is growing at a rate of 3.7% annually and will reach US$201b by 2025 and US$434b by 2027. The U.S. wine industry was valued at over US$88b by end 2020. The demand for wine increased last year despite the coronavirus pandemic. China is the second-largest market for wine and it redistributed over US$93b in the wine supply chain for 2020. This could be the reason why there are many projects that are focused on tokenizing this multi-billion industry. Tokenization of this lucrative sector would open up more opportunities, while reducing fraud and improving traceability which would directly benefit stakeholders.

 

Traditionally, anyone who wanted to buy exclusive wine for investments was faced with storage problems and high expenses. Tokenizaiton could now solve these age-old issues for everyone. When an investor buys a token that represents wine, they do not necessarily own the whole bottle, but instead own a certain portion. If the value of the wine increases, you benefit as a co-owner. This would significantly cut the cost of entry for wine investments.

 

Vineyards or collectors could sell the tokenized wine bottles via platforms to retail investors almost anywhere in the world. This is then followed by investors trading the tokens that represent their share in the bottle. They could, in theory, sell them with high profits. Despite the projected exponential growth, there are some key areas to lookout for before diving into the assets of tokenized wine:

 

  1. Being familiar with wine as a consumer product
  2. Inability to consume the product
  3. Willingness to accept the risk of price fluctuation

 

Wine has traditionally been a good investment as it has a positive long-term performance for investors. Wine supply could be deemed limited but the demand is constantly increasing. Investment into wine can be viewed as diversification of asset classes that is independent from the stock market. This investment could positively diversify a portfolio.

 

As the consumption of wine reduces the supply, rare vintages become even rarer. As it is known, the quality of wines increases with time, hence the increase in prices. The global demand for fine wine has also been increasing steadily but supply remains unchanged, as wineries have limited capacities and the exclusive wine-growing regions are fixed. Tokenization of wine stored on the blockchain also protects investors from counterfeiting, especially with high-priced vintages as plagiarism is a common problem. By combining wine and the blockchain would be a real value-add for all investors.

 

Source: Entrepreneur.com, Hackernoon, TechBullion, Token Information