Web3 whisky investments
Rare whisky investment consistently proves to be a substantial alternative investment class, as it has a low correlation with conventional markets like stock exchanges.
The RW APEX 1000 index that tracks the performance of 1000 rare whiskey bottles indicates a growth of 8.06% from the beginning of 2022 until the 9th of December 2022 (the time of writing). The market also proved to have high returns historically. Since 2012 to date, APEX 1000 index has grown by 425%. Another Whisky index that tracks the performance of the 50 oldest and rarest whisky bottles, Vintage 50, has grown over 300% in the same time frame.
But there’s also serious risk involved. Counterfeiting is commonplace, and the whisky market is mostly illiquid, to mention a few. The industry is always on the lookout for approaches to deal with the drawbacks of whisky investment. As it turns out, new technologies associated with web3 are particularly beneficial.
Web3 is a new and better version of the internet that is built on blockchain technology. Instead of centralized databases, it distributes data across a wide range of peer-to-peer networks. As a result of decentralization, it shifts the power from a few central authorities to the public and removes the need for intermediaries.
This new version of the World Wide Web is powered by tokens. Both fungible (cryptocurrencies like Ethereum) and nonfungible tokens (NFTs) are in use.
The central role NFTs play in collecting rare whisky
Any digital and physical asset can be converted into NFT. Although most people are familiar with digital art NFTs, other use cases include tokenizing real-world assets like real estate, fashion items such as sneakers or hoodies, and, surely, whisky bottles and casks.
When we create or mint an NFT, we produce an identifier that is linked to the underlying asset. This identifier can only refer to a unique asset, for instance, one specific bottle of whisky.
NFTs are registered on the public blockchain. This means that they are immutable and transparent. We can trace the wallets that store them. That’s why they function as digital certifications of ownership. Moreover, thanks to blockchain technology, it’s possible to view every transaction associated with NFTs. This facilitates spotting fraudulent activities.
Top risks and drawbacks of investing in whisky and how web3 help mitigate them
Web3 Whisky Investments benefit No.1: Fake bottles
Counterfeiting and scams are rampant in the whisky industry. A recent event that caught public attention involved a con artist who cold-called older adults to deceive them by promising high returns on whisky investments. The FBI arrested him over a $13m scam after a victim who lost $300,000 called the authorities.
In a study carried out in 2018 by the Scottish Universities Environmental Research Centre (SUERC), scientists tested over 100 Scotch whisky bottles and discovered that around 40% were fake.
Use NFTs to authenticate the ownership and provenance SUERC researchers explore different scientific methods to combat counterfeiting. They also benefit from NFT solutions. To this end, they teamed up with the blockchain provenance company Everledger.
Everledger provides its customers with a suite of cost-effective NFT creation tools so they can create proof of authentication, provenance, or ownership without coding. The platform leverages intelligent labeling techniques like NFC (Near Field Communication) to tag whisky bottles for provenance and attach them to NFTs.
Another notable whisky provenance solution based on blockchain is Chai Vault. Its certified authenticators inspect and certify original bottles worldwide and register them permanently on the blockchain.
High-end products like fine whisky require proof of origin, and platforms like Everledger and Chai Vault help producers prove the authenticity of their products. As a result, consumers can purchase verified bottles. It’s a win-win for all parties.
Web3 Whisky Investments benefit No.2: Insufficient revenues
Another problem with traditional whisky investing is the limited options for profits. The market is illiquid, bottles need storage that may require additional costs, and most of the time, the only way to gain revenue is to resell your whisky. These have ramifications for both whiskey investors and distilleries.
Web3 cut out intermediaries’ royalties. This, again, benefits both parties.
Reaching whisky lovers directly
Distilleries can offer their products either directly to end customers via NFT drops or can partner with NFT marketplaces. In the short history of NFTs, we have already witnessed many NFT whisky drops. Most whisky brands prefer to partner with NFT marketplaces instead of releasing collections on their websites. For example, Jonny Walker collaborates with Blockbar to offer multiple editions of Blue Label x VANDYTHEPINK to NFT whisky collectors. Currently, Blockbar is the go-to NFT platform for many Whisky brands. The marketplace releases collections of valuable spirits from Benriach, Dewar’s, and Glenfiddich, among others.
Apart from offering their products on the first market, whisky producers can incorporate unique royalty models in the NFTs’ smart contracts to earn a percentage of each secondary sale of the fine spirits.
Additional rewards for NFT owners thanks to DeFi opportunities
Whisky investors can collect authenticated bottles with proven ownership and can have access to additional incentives. Web3 is building a culture that rewards every participant. It’s where decentralized finance (DeFi) comes into play.
DeFi makes it possible to use NFTs as collaterals to take on loans and earn interest from NFT staking or yield farming. It’s just a matter of time before owners of whisky NFTs benefit from similar incentives.
Web3 Whisky Investments benefit No.3: High barriers to entry
Investment capital for the whisky market is very high for small investors. Blockchain developers invented new types of NFTs that can be applied to make whisky investing more inclusive. They’re fractional NFTs obtained by dividing a single NFT asset into smaller pieces.
Fractional NFTs work like company stocks. They allow investors to invest in small amounts. When you purchase a fractional NFT, you receive a share of the whole asset.
In the whisky industry, the fractional NFT concept is applied to split the fine whisky casks. UniCask, for instance, offers fractions of a Glenrothes 2012 cask, which will be bottled in 2032.
The total net volume of the cask is circa 195L, and there are 100 NFT editions. In other words, the owner of one Glenrothes NFT is the owner of circa 1.95L of the whole cask. UniCask has also fractionalized casks from Hanyu and Linkwood distilleries.
Blockchain technology allows distilleries to authenticate the provenance of their precious products. New marketplaces emerge that bring passionate whisky drinkers and brands together while providing collectors with the tools to discover verified fine whisky. All stakeholders become a part of the web3 culture that rewards its participants. Would like to read more from us about whisky and web3? Let us know we love to hear from you.