Intrigued by the growing trend for NFT’s in the world of spirits, but bamboozled by terms like Ethereum, non-fungible tokens and cryptocurrency? You aren’t alone.
NFTs operate in a parallel world powered by digital currency, acronyms, blockchains and investment lingo that can make your head spin if you think about it too much.
But there’s no doubt they are big business, with the NFT market valued at US$41 billion in 2021. The first NFT sold in 2014 for $1.4 million. A piece of digital art called ‘Quantum’ by Kevin McCoy, if you’re wondering. The most expensive NFT sold to date is also a piece of digital art, called The Merge by NFT artist Pak, which sold for $91.8 million in 2021. NFTs are now common in the art world, but 2021 saw the concept go mainstream. Now, multiple industries are getting in on the boom, including spirits. What could this mean for collectors of ultra premium spirits? Who’s buying them, and more importantly, what the deuce is an NFT?
What the fung?
NFT stands for ‘non-fungible token’. A non-fungible asset is one that can’t be transferred or exchanged for a similar product. It’s unique and permanent, like a piece of art. An NFT token is simply a digital receipt recording authenticity and ownership of a non-fungible asset. NFTs aren’t worth anything until an asset is attached to them. NFTs can be bought with conventional money, but are commonly purchased with cryptocurrency, such as Bitcoin (BTC) or Ethereum (ETH), also known as Ether. Ether is to Ethereum what pound sterling is to the Bank of England. Cryptocurrencies allow transactions to operate outside of a traditional banking system, beyond government control. Their value can rise and fall in relation to real world currency, but it’s a separate system. At the start of 2017, one Bitcoin (BTC) cost around £800. Today, one BTC is worth close to £30,000.
What has this got to do with spirits? Increasingly spirits producers are signing up to crypto-platforms and selling ultra-rare expressions as NFTs, specifically via Block Bar. The platform was founded in 2018 and is the world’s first (and currently only) direct-to-consumer NFT platform for luxury wine and spirits. BlockBar’s cryptocurrency of choice is Ether. You can make purchases with conventional money too, but any secondary sales will be credited to you in Ether.
NFTs and whisky
Kieran Healey-Ryder, head of whisky discovery for Whyte & Mackay, which owns The Dalmore, likens the NFT market to the dawn of the world wide web. “NFTs today are the latest technological innovation,” he says. “It is not the first. For me, it is reminiscent of the early days of digital, the first websites led many to question who would want to discover a whisky on the ‘world-wide-web’. Today, we don’t question it.”
Last year The Dalmore offered its first 25 NFTs via BlockBar, each tied to a limited edition set of its Decades No.4 Collection comprising four whiskies (1979, 1980, 1995, 2000). Each set sold for US$137,700 (around 50 ETH). “This is a space that offers an elevated digital experience,” adds Healey-Ryder. “Presentation is key. As more and more brands play in this space, what it takes to stand out will require a commitment to exceptional presentation and the imagination to communicate a truly special story.”
Crucially, BlockBar is responsible for storing the physical product and its cryptographic NFT certificate on its block chain as proof of authenticity and ownership. A blockchain is a digital ledger of transactions that is duplicated and distributed across a network of computer systems in a way that makes it nearly impossible to change or hack. You could redeem your NFT token for the physical product. In that instance BlockBar would destroy the NFT attached to it. But that’s not really in the spirit of NFT trading. This is about collecting and investing, with buyers able to resell their NFTs via the BlockBar platform.
Glenfiddich gets on the NFT bandwagon
Last year Glenfiddich offered its first 15 NFTs, each representing a rare bottle of 46-year-old single malt Scotch, finished for 21 years in an Armagnac cask. At US$18,000 (4.7 ETH) each they sold out in 4 seconds, and the next day were being flipped for between $189,000 and $288,000. “For the spirits industry, it opens up a new consumer segment and provides existing consumers with another means of managing and trading their whisky assets,” says Will Peacock, global luxury director at William Grant & Sons. “It opens doors for both brands and consumers to know each other directly.” Glenfiddich’s latest NFT release was 200 bottles of 21-year-old Reserva Rum cask single malt on 1 February. They sold out immediately and are already available on BlockBar’s secondary market.
Is it fraud-proof? Any system can be manipulated and any NFT platform needs to be trustworthy. But NFTs offer a novel solution to tackling counterfeits. Buying from an auction house means putting your faith in a third party to assure authenticity. Buying on a platform like BlockBar allows consumers to buy direct from brands with a full record of ownership. NFTs have an implicit ability to authenticate assets, with physical bottles retained within one sphere of influence, perhaps indefinitely. So the potential for assuring the authenticity of future super rare and old expressions is obvious. “The premise of BlockBar lends confidence to collectors and provides transparency in a secondary market, adds Peacock. “From our perspective the main security within this type of investment is that the NFT backed purchase allows individuals to build direct relationships directly with the brand. As well as this, the number of individuals who are buying asset-backed NFTs has grown exponentially, so it is becoming a more widely tried and accepted form of holding assets.”
You are still putting your trust in BlockBar, but it’s a digitally-minded, simple solution to tackling fraud. Penfolds, Dictador Rum and Hennessy have also signed up to sell super rare expressions via BlockBar – luxury brands with little need to branch into a potentially problematic space unless it was worth it.
Caveat emptor
Is this the future of spirits investment? Perhaps. There’s lots to love about NFTs. Guaranteed authenticity, assured storage, direct brand-to-consumer sales, slick, digital platforms. As with any leap forward the brave and bold go first. For the “technologically savvy consumer who is crypto-literate” there’s an expectation for luxury brands to have a presence in the NFT space, says Healey Ryder. “This is not your traditional whisky connoisseur necessarily. They are interested in exceptional products, progressive brands and technological change.”
There’s plenty to be wary of too, not least the volatility of cryptocurrencies. It’s not for the faint-hearted and financial diligence is strongly advised. Do the rewards outweigh the risks? That’s what every investor has to weigh. Either way, you’ll need deep pockets, and an iron disposition.
Slàinte.