{"id":21186,"date":"2017-11-10T15:54:51","date_gmt":"2017-11-10T20:54:51","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/using-blockchain-to-tackle-fraud-in-the-wine-supply-chain\/"},"modified":"2017-11-10T15:54:51","modified_gmt":"2017-11-10T20:54:51","slug":"using-blockchain-to-tackle-fraud-in-the-wine-supply-chain","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/using-blockchain-to-tackle-fraud-in-the-wine-supply-chain\/","title":{"rendered":"Using Blockchain to Tackle Fraud in the Wine Supply Chain"},"content":{"rendered":"

The wine industry has a fraud problem. While the issue of wine fraud dates as far back as first century Rome1<\/sup> the issue recently came to a head in 2012 when wine counterfeiter Rudy Kurniawan was convicted of dumping roughly 130 million dollars of fake wine into the collectible market2<\/sup>. Beyond this specific incident, there are countless examples of sophisticated wine collectors being scammed by fakes such as billionaire Bill Koch and his experience of purchasing wine that was fraudulently attributed to Thomas Jefferson3<\/sup> or the New York Times bestseller The Billionaire\u2019s Vinegar<\/em> detailing a German selling adulterated wine. This has created an authenticity problem for companies like Sotheby\u2019s who act as a middleman in wine auctions and are being squeezed to provide more transparency and authenticity about the wine being sold4<\/sup>. The impact of this on the wine supply chain has been amplified by the megatrend of digitization and the success digital solutions have had in improving business outcomes in other industries such as the insurance industry5<\/sup>. If auctioneers like Sotheby\u2019s don\u2019t respond to this trend they will lose trust in the industry and therefore sales. There is also a general acceptance that \u201cwines with demonstrable provenance are worth much more than they were previously\u201d6<\/sup> indicating that there is a business opportunity for any agent in the industry that can provide a deeper level of confidence to collectors.<\/p>\n

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The wine industry and Sotheby\u2019s are responding to this trend of fraud in several digital and non-digital ways. There is a group of scientists utilizing fundamental science such as carbon dating and nuclear isotope identification to verify the age of collectible wine7<\/sup>. There is also a group looking to embed RFID tracking in new bottles to provide a level of digital verification beyond the label8<\/sup> but an RFID solution has a limited shelf life and leaves the opportunity for future fraud. One solution gaining traction is the use of blockchain technology to create a verifiable history of ownership for rare wines9<\/sup>. This implementation is being driven by the company Everledger and their \u201cChai Wine Vault\u201d. Blockchain is a distributed ledger technology originally developed for digital currency but currently being applied to the digitization of many supply chains. Essentially blockchain creates a distributed database in an irreversible ledger which anyone who has an interest can keep a copy of. This concept of a distributed database can be leveraged to create a complete flow of chain of ownership with digital signatures that can be reviewed by any party10, 11<\/sup>. \u00a0Through a fully built blockchain solution any interested party could verify their bottle of wine against the information stored in the distributed ledger to verify the authenticity of the bottle. Everledger originally developed their blockchain solution to tackle the problem of fraudulent information in the diamond industry. In 2016 Everledger secured and authenticated its first bottle of wine by creating a digital footprint based on more than 90 data points on the bottle12<\/sup>. A blockchain solution presents an interesting opportunity for both short term and long term improvements as it allows for an immediate improvement in information but will become more valuable as it gains a bigger network of adoption.<\/p>\n

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While blockchain is an interesting application of digitization to the wine supply chain it is not without its problems. In the short term companies like Sotheby\u2019s need to create buy-in across the wine supply chain (producers, other auctioneers\/facilitators, collectors, experts) to create a critical mass of users relying on the \u201cChai Wine Vault\u201d as an authoritative source of information. While this solution also provides a chain of ownership it does not necessarily answer the original problem of authenticity for the wine supply already in circulation and requires the opinions of experts to initially verify a bottle. For this reason, the industry needs to continue to invest in fundamental scientific verification options beyond the digitization efforts in the supply chain.<\/p>\n

The application of blockchain and subsequent digitization in an industry as old as wine collecting does leave a few open-ended questions to address such as; Will an \u201cold school\u201d industry like wine collecting truly embrace a cutting-edge digital ledger solution even with the current authenticity problems challenging the industry? How do you create trust in the original point of entry to the ledger for wine currently in private collections?<\/p>\n

(714 Words)<\/p>\n

 <\/p>\n

1<\/sup> Eric Annino, \u201cHow Blockchain Can Restore Trust In The Wine Industry,\u201d ForbesBrandVoice, September 11, 2017, https:\/\/www.forbes.com\/sites\/sap\/2017\/09\/11\/how-blockchain-can-restore-trust-in-the-wine-industry\/#16d443b31874, accessed November 2017.<\/p>\n

2<\/sup> Elin McCoy, \u201cNew Wine Fraud Website Will Help You Avoid Fake Bottles\u201d, Bloomberg, February 11, 2015, https:\/\/www.bloomberg.com\/news\/articles\/2015-02-11\/new-wine-fraud-website-will-help-you-avoid-fake-bottles, accessed November 2017.<\/p>\n

3<\/sup> \u201cCorkscrewed,\u201d 60 Minutes, CBS, October 22, 2017.<\/p>\n

4<\/sup> Guy Collins, \u201cMouton \u201945 Leads $21.9 Million Koch Wine Auction at Sotheby\u2019s,\u201d Bloomberg, May 22, 2016, https:\/\/www.bloomberg.com\/news\/articles\/2016-05-22\/mouton-45-leads-21-9-million-koch-wine-auction-at-sotheby-s, accessed November 2017.<\/p>\n

5<\/sup> \u201cBlockchain applications in insurance,\u201d Deloitte, 2016, https:\/\/www2.deloitte.com\/content\/dam\/Deloitte\/ch\/Documents\/innovation\/ch-en-innovation-deloitte-blockchain-app-in-insurance.pdf, accessed November 2017.<\/p>\n

6<\/sup> Alexa Mason, \u201cCan New Technology Put an End to Wine Fraud?,\u201d Savingadvice.com, January 30, 2017, https:\/\/www.savingadvice.com\/articles\/2017\/01\/30\/1047281_wine-fraud.html, accessed November 2017.<\/p>\n

7<\/sup> \u201cHow Atomic Particles Helped Solve A Wine Fraud Mystery\u201d, NPR, June 3, 2014, https:\/\/www.npr.org\/sections\/thesalt\/2014\/06\/03\/318241738\/how-atomic-particles-became-the-smoking-gun-in-wine-fraud-mystery, accessed November 2017.<\/p>\n

8<\/sup> Claire Swedberg \u201cCh\u00e2teau Le Pin Uses NFC to Ensure Its Wine’s Authenticity\u201d, RFID Journal, http:\/\/www.rfidjournal.com\/articles\/view?10834, accessed November 2017.<\/p>\n

9<\/sup> Ben Dickson, \u201cBlockchain has the potential to revolutionize the supply chain,\u201d Techcrunch, November 24, 2016, https:\/\/techcrunch.com\/2016\/11\/24\/blockchain-has-the-potential-to-revolutionize-the-supply-chain\/, accessed November 2017.<\/p>\n

10<\/sup> Ronnie Garrett, \u201cHOW BLOCKCHAIN IS TRANSFORMING THE SUPPLY CHAIN,\u201d Supply & Demand Chain Executive. May2017, Vol. 18 Issue 2, via Ebscohost , accessed November 2017.<\/p>\n

11<\/sup> Morgen E. Peck, \u201cBlockchain world – Do you need a blockchain? This chart will tell you if the technology can solve your problem.,\u201d IEEE Spectrum. Oct2017, Vol. 54 Issue 10, via IEEE Xlpore, accessed November 2017.<\/p>\n

12<\/sup> \u201cEverledger secures the first bottle of wine on the blockchain,\u201d Finextra, December 9, 2016, https:\/\/www.finextra.com\/pressarticle\/67381\/everledger-secures-the-first-bottle-of-wine-on-the-blockchain, accessed November 2017.<\/p>\n","protected":false},"excerpt":{"rendered":"

Wine collectors are being duped by fake wine in the supply chain. 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