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Liquid Insights: Authenticating Wine and Whisky

Liquid Insights: Authenticating Wine and Whisky
August 16, 2022
Bradley Calleja

What do artificial tongues, holograms, NFTs and QR codes have in common?

They are all on the front lines in the battle against counterfeit wines and whisky.

Growing Market = Growing Fraud

Where there is a market, there is fraud, and in the case of fine wine and rare whisky, as the market grows, so does the frequency of illegal activity. Although the global wine market has surpassed $340 billion, less than 5% are considered 'investment-grade' and only around 1.5% of all wines are actively transacted across auction houses and other secondary markets. That minuscule percentage of wines treated as investments is still an impressive tally and is quickly swelling as the market booms. In 2021, Sotheby's sold a record $132 million worth of wine and spirits, up 44% from the previous year. Out of that total, $111 million came from wine with the remaining $21 million represented by spirits. The age of bidders is also delivering promising signs for the market as 33% of those who bid on wine and spirits in 2021 at Sotheby's were under 40 years old. The market is also expanding around the world, as the auction market in Asia surpassed $100 million overall and hit $67 million at Sotheby's alone, more than $40 million higher than total sales in the United States. The US consumer still controls the hammer, as 38% of bidders at Sotheby's came from the Americas although buyers from Asia accounted for 57% of all auction sales vs 20% from American buyers. As international appeal explodes, the percentage of wines and spirits that are likely counterfeit has kept pace.

From 2000-2020, studies performed by various experts in the wine authentication space found that on average approximately 20% of wines on secondary markets are fake and misrepresented. Then in 2018, testing conducted by a laboratory in Scotland found that more than 38% of 'rare' Scotch Whiskies on secondary markets were actually fake. This test was especially concerning because it reviewed whiskies that had already been sold at top auction houses and all had been deemed legitimate by the auction house experts. So how is the market combating fraudulent activity during a booming period for the investment-grade wine and spirits market?

Artificial Tongues

Let's start with the most unique form of authentication technology that is emerging within the wine and whisky industry. In the mid-2010s, engineers from Scotland created a device that 'tastes' the liquid and can make a determination based on linear discriminant analysis on what type of whisky or wine is in the bottle plus in some cases, even the vintage. The small chips use properties of aluminium and gold to breakdown the chemical compounds of the liquid through nanoscale 'tastebuds' and then matches those compounds with a predetermined algorithm that in turn, produces a percentage-based likelihood of the producer and vintage.

According to the engineers, the tastebuds offer 99% accuracy and are currently being tested across acclaimed producers including Glenfiddich and Laphroaig. While the current state of the tongue is still testing whisky the engineers plan to expand the offering across any beverage with an investment market. According to Alasdair Clar, lead engineer on the project, "While we've focused on whisky in this experiment, the artificial tongue could easily be used to 'taste' virtually any liquid, which means it could be used for a wide variety of applications". The tasting could also be used to detect food spoilage or alert someone of a potential allergen such as nuts and gluten.

While the use cases for the tongue are growing, there is one problem which has held back large-scale adoption of the artificial tongue within the investment market - the tongue has to actually 'taste' the wine or whisky. This requires the seal of the bottle to be broken or for wine, the integrity of the cork to be impacted.

Holograms, NFTs, and QR Codes

In 2017, Laurent Ponsot left the comforts of his world-renowned family estate to start his own label. One of the primary concerns for Ponsot was the increasing percentage of counterfeit wines on the market. While technology like the artificial tongue shows potential, the limitations forced him to turn to a different form of technology in order to protect his production.

Today, Ponsot's wines employe a variety of features that ensures the buyer that the liquid inside is legitimate and the bottles have not been tampered with. Each bottle carries a near-field communication chip (NFC) that are integrated into the glass bottles' capsule. The chips are tamper-proof and scannable by smartphone to provide collectors and investors with peace of mind when purchasing a bottle of Ponsot vino. The chip detects when the capsule is removed from the bottle and when scanned by the consumer, provides data including vintage and a certificate of authenticity. Similar chips are being deployed within the seals and capsules of wines around the world an in 2020, the National Office for Vine and Vitivinicultural Products, which is the Romanian authority that oversees winemaking within the country, introduced security holograms that must be applied to select investment-grade bottles to ensure their integrity. The security chips act as QR codes which are now also connecting with a digital tracker through blockchain technology. The NFTs match with the chip and real-time data is shared between the chip and a digital portfolio which allows a broker or auction house to seamlessly review important history and detail regarding the wine or whisky.

On the brokerage and investment market, wine is often sold through cases, which has also provided an opportunity for counterfeit. Over the years, there have been instances where a case labeled Domaine Romanee-Conti has actually been filled with bottles containing grape juice. Anyone who collects sports cards and is familiar with the sealed wax market can relate to the increasing questions around what is actually inside unopened boxes.

There is technology solving that problem as well and Ponsot is leading the innovation. All cases of Ponsot wines are equipped with temperature sensors that record every three hours for fifteen years. The data collected by the sensors can also be accessed by smartphone and allows the buyer to monitor historic temperatures for the case to ensure the wine was not exposed to extreme conditions that might degrade the liquid. The buyer can also review anytime the case has been opened and the bottles within the case are layered with sensors that record anytime one of removed.

As alternative asset markets continue to appreciate and attract more financial resources, the need for additional technology to safeguard against illegal activity will be necessary. It is not unreasonable to say that in the midst of the strongest market ever recorded, the integrity of the entire wine and spirits market is at stake.

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Disclaimer: You understand that by reading Altan Insights, you are not receiving financial advice. No content published here constitutes a recommendation that any particular security, transaction, or investment strategy is suitable for any specific person. You further understand that the author(s) are not advising you personally concerning the nature, potential, value or suitability of any particular security, transaction, or investment strategy. You alone are solely responsible for determining whether an investment, security or strategy, or any other product or service, is appropriate or suitable for you based on your investment objectives and personal financial situation. Please speak with a financial advisor to understand if the risks inherent in trading are appropriate for you. Trade at your own risk.

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