How blockchain can cut down fraud in the wine industry

It’s a special occasion, and time to uncork the good stuff. But how do you know if the expensive bottle of wine on the dinner table really contains what its fancy label claims?

China is one of the largest wine consumers in the world by total volume, ranking fifth below the United States, France, Italy and Germany. In 2019, Chinese wine lovers imbibed about 1.78 billion liters of wine. But China’s growing appetite for imported and domestic wine, experts say, has also made it a ripe target for counterfeiters looking to exploit the market. 

“Unfortunately, buyers in nascent markets are not as knowledgeable of what to ask about or look for with provenance, nor any aspect of wine authentication, leaving this market a prime target for counterfeiters and those selling counterfeits.” Maureen Downey, an expert on fake wine, told Forkast.News. “As much as 50% of the fine wines in China are believed to be fake.”

But supply-chain verification and authentication through blockchain technology are now trying to cut down on wine fraud — which experts estimate is a billion-dollar industry.

“Wine is something to be aged, cellared, and is often a generational hobby,” Downey said. “To track it, we need something that can stand the test of time, and blockchain is the only thing that we’ve seen that will even come close.”

Different forms of wine fraud

Wine fraud could take different forms, including wine investment scams. But a common scheme is changing or faking labels and refilling bottles with cheaper wine. The latter can be so hard to detect that the true figures on counterfeit wine on the global market may be hard to obtain.

“I would argue that no one really knows the true figures,” Scott Evers, owner and director of Wine Provenance and a professional wine authenticator who has worked in Asia, told Forkast.News. “There is no doubt that a large amount of counterfeit wine is sitting in Chinese cellars… and most drinkers and collectors would be unaware that they even own counterfeits.”

But this much experts agree on: the European and the U.S. markets are becoming increasingly sophisticated with authenticating wine and detecting fraud — and more counterfeit wine is being dumped into Asia, especially China.

“Historically it was fine and rare wine from the world’s great producers that were counterfeited, whereas today we are seeing any wine brand at all price points now being counterfeited — this is most prevalent in China,” Evers added. “Criminal gangs are diversifying into counterfeiting wine, and sparing no expense on the ‘tools of the trade’ and this is particularly worrying because the quality of these counterfeit wines are becoming quite advanced.”

A cocktail of blockchain solutions

To thwart wine counterfeiters, blockchain companies are creating a mix of solutions.

Chinese technology behemoth Tencent recently began collaborating with domestic wine producer Changyu Pioneer Wine to apply blockchain to the winemaking supply chain, from grape to bottle. According to Bin Ma, Tencent’s vice president, the traceability system could help improve the country’s wine industry standards.

The proposed system would work through the issuance of a unique certificate recorded on a blockchain platform. Curious consumers would then be able to check the authenticity of the product by scanning a QR code on the bottle which would display relevant information.

In Hong Kong, blockchain tech company Everledger uses a similar approach to fight counterfeit productions: anti-tamper bottle closures enhanced with the Internet of Things (IoT) and distributed ledger technology (DLT).

“Hong Kong’s primary market is mainland China, where consumers are faced with the highest rate of wine counterfeits globally,” said Eric Robertson, product owner for wine & spirits at Everledger, in an interview with Forkast.News. “We see the ability to enable reliable authentication with the IoT and DLT as a means to preserve marketplace reputation and build consumer confidence on brands.”

Perth-based Cellr is also tackling the fake wine market by embedding near-field communication (NFC) and radio frequency identification chips in bottle caps. By scanning Cellr-enabled bottle caps with a mobile application, consumers can check the bottle’s provenance and producer.

Other applications in supply chains

Tencent is not the only company in China seeking to curb fakes in the market. Chinese Internet giant Sina — famous for its Twitter-like microblog app Sina Weibo — is also exploring a similar solution applied to Chinese baijiu, a clear liquor created from fermented sorghum. While readers outside of China may not be as familiar with this fiery product, it is the world’s most consumed hard liquor.

As previously reported on Forkast.News, Sina has partnered with a Baijiu producer Wuliangye Yibin to create a similar blockchain-based traceability platform. 

Another blockchain application is in Pu’er tea, a type of fermented tea that is a staple in parts of Asia. In June, China’s Yunnan Province which produces the tea also announced a blockchain traceability platform organized by the provincial government to help improve transparency for consumers.

Moreover, the value of high-end wine and baijiu often appreciates over time, giving rise to another potential application of blockchain. This time, the commodity could be treated as an asset for investment purposes. 

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“This is where I feel blockchain makes the most sense. It can create a truly immutable ledger that creates clarity and certainty whilst a series of transactions and events play out. I love this business and feel it is one of the best uses of blockchain for the wine industry.” said Chris Braine, co-founder of Cellr, in an interview with Forkast.News

Austrian gin maker The Stin is also experimenting with combining blockchain and NFC technology to improve transparency in its supply chain.

In partnership with Austrian blockchain company block42, The Stin will store NFC data on the ICON blockchain, which is a South Korean public blockchain project. 

But while high-tech solutions seek ways to curb wine fraud in the global food and beverage industry, scammers may also continue to find ways to use technology to their advantage.

Problems with some ‘solutions’

Even with the most advanced technology, the issue of “garbage in, garbage out,” or incorrect data submission, is still a potential problem that blockchain-based traceability platforms may be susceptible to.

“A secure digital identity for a bottle of baijiu or a cake of Pu’er tea is still only reliable as the data it references — where is the data coming from?” Robertson said. “If it’s solely by the brand itself, as opposed to multiple sources along the supply chain (such as growers and certifiers) who can contribute a more complete provenance, then it’s still susceptible to counterfeiting.”

Other experts questioned the application of QR codes, which have been known to be used as vectors for scams and hacks by malicious actors. 

“I expect we’ll soon see an onslaught of attacks via QR codes,” said Alex Mosher, global vice president of solutions at MobileIron in a statement. “A hacker could easily embed a malicious URL containing custom malware into a QR code, which could then exfiltrate data from a mobile device when scanned. 

QR codes are almost ubiquitously used in China as part of a large mobile payment system backed by Tencent’s WeChat Pay and Alibaba’s Alipay platforms.

“QR Codes shouldn’t be in the conversation given the complete lack of security they are known for (and the fact that they are copyable at scale with ease),” said Braine, of Cellr. 

The gaps that exist in harnessing wine authenticating technology show that the human factor still matters.

“Professional authenticators like myself are a rare breed globally, so by enabling consumers to do their own bottle authentication through direct to consumer communication, we are enabling a far greater population of the extended wine community to help us to fight the good fight,” Evers said.