Understanding NFTs – the new frontier in whisky collecting

Understanding NFTs – the new frontier in whisky collecting

With the continuing technological revolution, the world of collectable whisky is changing – with not only the transactions but also the assets themselves moving into the digital sphere. We examine the most prominent of these new investment models: the NFT

Whisky & Culture | 19 Jun 2023 | Issue 191 | By James Bunting

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In whisky, as in life, there are timely and timeless trends. The latest trend fighting for timelessness is the non-fungible token, or NFT. These tokens are a part of Web 3.0, the new wave of the internet focused on decentralisation. Where Web 1.0 was about the consumption of content and Web 2.0 was the creation of content (hello, social media), the latest iteration is eschewing the big tech platforms, abandoning some of the traditional regulations, and building instead a new-look internet that its supporters claim is meant to benefit the many, not the few.

 

An NFT is a digital token that exists on the blockchain – a sort of public ledger – meaning there can only be one official instance of it. Made famous as art, they now also take the form of membership tokens to clubs or even a share in a fund that invests on behalf of the membership. NFTs can be bought and sold freely, often using cryptocurrencies such as Bitcoin or Ethereum, but can also be “burned”, a process that destroys or marks the NFT, often to indicate it has been redeemed for something.

 

Such new technology has attracted huge investment, with Statista estimating the sector will reach revenues of US$3.54 billion in 2023. It seems it was, therefore, only a matter of time before NFTs reached the world of whisky, especially at the luxury end. To some they are a marketing ploy, to others a false dawn, and yet there are also plenty of people who see NFTs as the future of the industry.

 

Before exploring the champions and the critics of this new technology, it is worth first noting the consideration of whisky as a liquid to be drunk and as an asset to invest in. The continual rise of the secondary market is an ever-present reminder that whisky has become about both investment and enjoyment, and the arrival of NFTs is just the latest method by which investors are buying and selling rare bottles for profit.

 

One of the earliest entries to the NFT-trading world was Blockbar marketplace. The model works in that customers purchase an NFT of a specific product – for example, one of the 15 rare bottles of Glenfiddich 1973 Armagnac Cask Finish that launched the business – which is then held in a digital wallet whilst the physical bottle is stored in a third-party warehouse in Singapore that Blockbar rents. The NFT acts as proof of ownership; should that person wish to sell the bottle, they sell the NFT via the Blockbar platform, and if they want to hold the physical bottle, then the NFT is “burned” and the bottle handed over.

 

“We’re solving a problem” said Dov Falic, one of the founders of Blockbar. “With NFTs we can remove the restrictions of time and space to provide access beyond regional allocations, and provide greater authenticity than ever before by working directly with distilleries.” He continues, “Buying and selling via NFTs removes the complexity of the auction house model where bottles are shipped around the world for verification and sale. We can do all of that via the blockchain instead.”

 

Dov and his co-founder and cousin Sam Falic are the next generation of the owners of Duty Free America, the largest duty-free retailer in the western hemisphere. Such a background has no doubt played a role in Blockbar reaching half a million users and turnover of US$7 million already.

 

Interestingly, another major player in the duty-free industry, Gebr. Heinemann, has recently launched its own NFT-related project, Amber Island, building on its network of suppliers and experts. Amber Island operates like a collectors’ club for the digital space, offering unique releases and experiences only to those holding its NFT membership token. Membership is priced at 0.15 Ethereum (roughly £238 or US$298 at the time of going to press) and grants the holder access to the community and special bottles.

 

One of the brains behind the business, Shenr-Jye Hon, calls out a clear goal for the project: “We want to build a community and move away from a list-and-sell model.” List and sell in this instance means partnering with a distillery to sell a rare bottle then immediately moving on to listing and selling another, without stopping to engage or build anything between.

 

Amber Island, and Hon as venture lead, see a different purpose in NFTs compared with Blockbar. “We looked at the blockchain space from the point of view of our audience and tried to build something to meet their needs,” says Hon. “The focus shouldn’t be on the secondary market; the industry is in a test-and-learn phase and our bet is long-term communities are better than just trading rare bottles.”

 

 

The Dalmore launched an NFT representing a set of its Decades No. 4 Collection. Credit: Blockbar

It’s too soon to judge the veracity of Hon’s plan and whether the community will remain if the rare bottles ever dry up, but his point that the crossover between NFTs and whisky is still in its infancy is an important one.

One person who believes he’s seen enough, however, is whisky consultant Blair Bowman. Bowman is quick to point out he’s not against Web 3.0 or the blockchain – citing the likes of Bruichladdich and Ardnamurchan which utilise the blockchain to provide an immutable model of production, allowing bottle owners to go into minute detail such as grain harvest dates or yeast strain used. “But I’m yet to be persuaded by any existing NFT project,” Bowman says. “It all feels very anti-whisky to be using this tech to trade bottles rather than opening them to drink. You can’t drink an NFT!”

 

And Bowman has a point. A recent collaboration between Blockbar and Ardbeg saw 456 bottles of a unique expression released via the platform. At the time of writing, just 58 bottles had been redeemed, a further 55 are listed for sale, and 343 bottles are simply held, either for future sale or future consumption. We can’t assume what those 398 unredeemed bottles have in store for them, but the ratio of redeemed versus held does suggest trading and collecting is the priority.

 

John Roberston, managing director of Caskshare, echoes Bowman’s worries. “Current NFT projects are predicated on the idea of collectors and drinkers being two distinct people, which they’re not. Our customers want to drink and collect bottles, to have them on their shelves, so it feels like a case of technology for technology’s sake, rather than benefitting whisky drinkers.”

 

Asked about this, John Laurie, managing director of The Glenturret, which recently launched its first NFT collaboration with Amber Island, said, “Everything new that comes along presents both risk and opportunity. We don’t see NFTs being any different to the current auction model – a collector is a collector, this is just a different way of doing that.”

 

This points to an important facet of NFTs and blockchain technology: the immutable and public ledger of transactions means a distillery can see which NFT wallets hold which bottles and where they were bought from, therefore providing an opportunity to engage with collectors across the world in a more transparent way than an auction house or private broker might currently allow.

 

“This is exciting,” says Laurie, “as it means we can sell an NFT and begin communicating in a country we might not have distribution in.”

 

The predominant focus of all NFT projects to date has been facilitating the sale of bottles – even Amber Island promised a rare release at launch as a way to attract members – but NFTs have utility beyond this, which will be the next frontier for distilleries to explore. Brands could use them to unlock a new breed of loyalty scheme with even closer communication and transparency between distillery and drinker. While a mailing list could be clogged with people who bought one bottle once and just never unsubscribed, or people who are only there to get their hands on the rarest bottles, an NFT membership could validate those who purchase regularly and track loyalty through new measures, such as physical visitors to the distillery via something known as Proof of Attendance Protocol (POAP), a sort of Facebook “Check-in” for NFTs.

 

Considering the membership numbers and engagement of clubs such as The Ardbeg Committee or Friends of Laphroaig, we could see this come to life very soon and transform brand loyalty from a follow on Instagram to a detailed purchase history and visitation that both sides can point to for future events, releases, access, and occasions.

 

The overriding sense is that it’s just too soon to be either staking a distillery on the future of NFTs, or disregarding them before their full potential has been realised. It might only take one perfect iteration or horrible mistake to decide the long-term fate of NFTs in whisky but, for now, the bulk of NFT projects remain focused on investment and the sale of rare bottles. 

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