This story is part of Punch-Drunk in the Metaverse, a new, occasional column from VinePair writer-at-large Dave Infante exploring the ways cryptocurrencies, non-fungible tokens, and Web3 aspirations are changing beverage alcohol — for better and worse.
Welcome to 2022! The mayor of New York City wants his paychecks in Bitcoin. Your dumbest friends are making millions speculating on digital cartoon characters. Your boss has begun kicking off team stand-ups by dropping “gm” in the chat. Life is weird right now, and as far as you’re concerned, cryptocurrency is to blame.
All these alienating, digitally driven cultural shifts have understandably left you hankering for the hard stuff. So you head to the liquor store — the real-life liquor store, thank you very much — for some bourbon. Lo and behold, right there on the shelf minding its own business is a bottle of Col. E.H. Taylor Four Grain. Sure it’ll cost a cool grand, but this stuff is tough to find. Some people consider it the world’s best whiskey, for chrissakes! In a hurry, you plunk down the dough and leave the shop with a skip in your step.
It’s only once you get back home that you notice some things amiss with your whiskey windfall. The tax strip is affixed backwards; the color of the liquid looks a bit off. Are those drip stains on the label? And where’s the special box it’s supposed to come in? As your joy fades, dread creeps in. Is it… no. Could it be? Did you just drop a thousand bucks on counterfeit bourbon?
It’s entirely possible. In fact, it’s already happened. In April 2021, a liquor store on Manhattan’s Upper West Side sold customers several bottles of Col. E.H. Taylor Four Grain that were later exposed by “Inside Edition” to be fakes. “It was just the latest high-profile example of what distillers, retailers, and consumers describe as a growing problem for the bourbon industry and its millions of enthusiasts,” wrote The New York Times’s Clay Risen earlier this month, recalling the scandal. “Over the past few years counterfeiting, long a problem for purveyors of fine wines and single-malt Scotch, has come to American whiskey.”
A lot of conversations about Web3 — a catchall term that encompasses various, sometimes-disparate visions of a decentralized, blockchain-based internet yet to come — focus on what could happen, rather than what is happening. Nowhere is this more evident than the frenzied, speculative world of non-fungible tokens (NFTs). NFTs are often held out by boosters as the future of intellectual and commercial exchange, but the technology is best known at the moment as a clearinghouse for tacky art bought and sold at obscene sums by a small cohort of extremely online true believers. It’s hard to see how Bored Apes (et al.) are going to produce the disruptive financial, political, and cultural decentralization about which their acolytes wax poetic.
It’s vital to remember that such broad, sweeping upheaval may never take place. But that’s not to say there aren’t more practical, utility-driven applications of NFT technology in the here and now. Which brings us back to the matter of that counterfeit Col. E.H. Taylor.
“I believe all ultra-rare goods are going to be tied to blockchains,” says Mark Belluz, the co-founder of BarrelFi, an Ethereum-based marketplace that claims to have minted the world’s first bourbon NFT. (Ethereum, or ETH, is one of the most popular mainstream cryptocurrencies.) Belluz, a self-described “crypto hobbyist and amateur alcohol collector,” views NFTs as an unalloyed superlative for secondary market bottle sales when compared to the alternatives, which include gray-area, peer-to-peer transactions via social media, fee-laden auctions at traditional brokerage houses, or poorly regulated retail resales like the one “Inside Edition” revealed in NYC.
Belluz isn’t the only one who sees a role for NFTs in authentication of high-end brown liquor. Also in October, Glenfiddich auctioned 15 tokens, each tied to a real-life bottle of its rare 1973 single-malt Scotch finished 21 years in an Armagnac cask, on another Ethereum-based luxury goods market called BlockBar. The tokens sold out within a day for $18,000 apiece; the bottles, reported Kara Newman for PUNCH, will be taken directly from the iconic distillery and stored in a climate-controlled warehouse in Singapore for safekeeping. Marking the transactions on the blockchain makes it easier to validate the provenance of the underlying liquid, theoretically forestalling a “Billionaire’s Vinegar” situation. (Or a thousandaire’s anise spirit, for that matter.)
“At the end of the day, the biggest hurdle is around authenticity,” one BlockBar founder told Newman. Without NFTs, “there’s no way to prove it unless the next person tests the liquid, which kind of ruins the whole thing.” (BlockBar didn’t respond to a request for comment; Glenfiddich’s parent company, William Grant & Sons, declined.) Because these 15 tokens originated with Glenfiddich, and that record can’t be manipulated, Scotch collectors can confidently buy and sell the physical bottles without ever scrutinizing or even taking receipt of them in person.
(Now: You might argue that Scotch was meant to be drunk, not swapped dispassionately like stock, and this whole system therefore sucks. Which, sure, but then your quibble is with speculative investing in alternative assets as a concept, not NFTs as a means to do the speculating. Take it up with Thorstein Veblen and Hyman Minsky and, like, StockX. Or whoever.)
The Glenfiddich auction is one example of an NFT-IRL relationship: something in the Web3 ecosystem that pertains to something else in the “meat” (i.e., real) world. Glenfiddich’s Scotch tokens are on the Ethereum blockchain because Glenfiddich (presumably with BlockBar’s help) put them there. If you trust Glenfiddich not to forge that initial transaction, you can trust every single one that comes after it. Like buying a stock in a publicly traded company as opposed to an I.O.U. from your uncle, you know the security is real, the seller has the right to sell it to you, and that the price you pay for it aligns with its market value.
“[W]e think this might be of interest to crypto skeptics as they might see a benefit of purchasing an NFT with a redeemable physical bottle of rare whisky directly from our brand, which they recognize and trust,” William Grant & Sons’ global luxury director told The Drum. Such is the promise of blockchain technology to speculative “alternative assets” like high-end booze, and the Scottish firm is not the only whiskey concern to make use of it.
“Our approach to whiskey is more traditional finance,” says Ben Tsai, president and managing partner at Wave Financial, a California investment firm that bills itself as “pioneering the bridge between traditional asset management and cutting edge technology.” In 2020, Wave raised a fund with private investors and acquired nearly 3,000 barrels of unaged whiskey from Danville, Ky.’s red-hot Wilderness Trail Distillery. The IRL barrels are tokenized among investors, and the investment thesis is pretty darn traditional: As the white dog ages, Wave hopes demand will increase so that when it’s ready to be bottled, they’ll be able to sell it at a price that delivers the return they’ve projected, around three to five times initial investment. (Wilderness Trail itself is one potential buyer, but Tsai says Wave has the right to explore others.)
By issuing investors’ stakes as NFTs, the fund offers more liquidity and transparency than shares alone might, says Tsai, but “the token itself is not the be-all, end-all to this project.” It’s just a utility that reduces friction between digital assets and their physical counterparts. “This particular play is a physical asset, and we like it that way,” says Tsai.
Somewhere between Glennfiddich’s high-end collectible auction and Wave’s commodity-oriented investment strategy sits BarrelFi. The inaugural collection featured 111 tokens listed at .111 ETH apiece, each tied to one 750-milliliter share of real-life barrel of bourbon from Charleston, S.C.’s Striped Pig Distillery. NFT’s, Belluz says, are a way to “democratize” whiskey collecting — and potentially empower producers to capture more revenue from the lucrative secondary- and tertiary-market sales.
“Today, when a [bottle of] Pappy sells for $200 initial sale and then a $2,000 secondary [sale], $1,800 profit goes to someone, typically illegally,” explains Belluz by way of example. “In the NFT space, say there’s a 5 percent residual in place agreed upon in advance. … Buffalo Trace would get that 5 percent, and they’d have the certainty that the transaction is aboveboard.” (He’s describing the concept of a “smart contract,” which is the set of rules embedded into the code of an NFT that dictates the terms by which it can be bought and sold.)
Obviously, this would drive more revenue to the producers, which rank-and-file drinkers may or may not care about. But NFTs that originated with the distillery and correspond to IRL bottles also provide prospective buyers with a trustworthy way to verify that the booze was the genuine article. In a world where every rare bourbon release is documented on the blockchain, only a schmuck would buy Col. E.H. Taylor Four Grain without a token to go with it.
Or misjudge its rarity and buy it for an outlandish price. “If we could take an entire release, or a significant portion of a particular bottle release, on the blockchain, everyone will be able to see ‘OK, the last time this bottle was sold, it was sold for X amount of dollars, and now there are [this many] left in the marketplace that are available for sale.’ It would just make the whole marketplace much more open and transparent for everyone,” says Josh Wozniak, Belluz’s BarrelFi co-founder. The two see similar benefits when it comes to keeping allocations of coveted releases fair and transparent, something that retailers, consumers, and even some top producers say currently are not.
Of course, the world’s whiskey makers are just now beginning to dabble with blockchain applications, which makes the vision of a fraud-proof, inherently fair bourbon marketplace just one more of those things that could be great. But existing projects like BarrelFi are a start. Belluz and Wozniak hope to develop the marketplace to facilitate trustless, win-win transactions between drinkers and other producers in the future. They’re also working to build a community (known in the jargon as a decentralized autonomous organization, or DAO) around their Striped Pig NFT collection by maintaining a Discord server where token holders can talk to each other — about whiskey, Web3, whatever — and vote on whether to begin the bottling process or continue barrel-aging the bourbon they all part-own.
“It’s community-driven decision-making for this ultra-rare product, which is kind of wild,” says Belluz. “You can do it outside of crypto, but crypto makes it super easy.”