GEM STATE REPORT | by Jim Thomssen Northwest wineries explore digital currency

Northwest wineries slowly enter ‘techno’ territory

By Jim Thomssen

Crypto, blockchains, transaction footprints and non-fungible tokens really don’t sound like words you expect to hear when you are talking about wine.

Typically, it’s terroir, varietals, pH, tannins and Brix. These phrases and more, however, could become part of the wine aficionado’s vocabulary sooner than you think. It’s a bit complicated, so we will need to define some terms as we decode the mystery and start to make sense of this new trend.

If something is fungible that means it’s a commodity that is essentially interchangeable with a like item. Think of two barrels of oil or bushels of wheat. If something is unique in a quantifiable and unique way, it is not and hence has unique values. (I never thought those old Econ 201 phrases would come back to me.)

Non-fungible tokens, NFTs, are unique items that can be physical items or music or art that can be identified and tracked digitally.

The digital blockchain is basically the home for the group of numbers and letters that identify each NFT through its “digital identifier.”

Being hosted on thousands of computers worldwide — the blockchain — and crosschecked continually make each item unalterable in its uniqueness on a completely decentralized system.

Acclaimed author Mike Veseth is known internationally as “The Wine Economist,” however, I remember him as my economics professor at the University of Puget Sound. He’s just published his fifth book, Wine Wars II, so I asked him to define an NFT.

“An NFT or non-fungible token is a digital asset that is linked to a real object such as music, a work of art or even a bottle of wine, generally using blockchain digital technology to verify ownership and any transactions,” he wrote. “The tokens are ‘non-fungible’ in the sense that each is unique to the object it represents, unlike ‘fungible’ currencies which can be exchanged in markets for many different currencies or objects.”

Why should we care? Well, following the money is one good reason.

In 2021, it was estimated that there were NFT sales of more than $24.9 billion. The first Twitter tweet sold for $2.9 million dollars, and 20 | greatnorthwestwine.com

the venerable auction house, Christies, auctioned a digital piece of art by someone called Beeple for $69 million. This way of doing business is gaining traction.

But what about wine? Wine is a consumable item. What happens if you drink your NFT on New Year’s Eve? That’s the concern a lot of the digital wine pioneers have, and they are looking at ways to work around the non-liquid aspect of the NFT world.

Robert Mondavi has jumped in with a limited edition series of wines sourced from their

iconic To-Kalon Vineyard. Each one of the 1,966 stunning handcrafted Bernardaud porcelain magnums will be included with the sale of a unique digital artwork by Clay Heston. In essence, the owner of the NFT will receive an exceptional wine, a one-of-a-kind bottle and a unique artwork made specifically for that wine. They will all be linked via the NFT and authenticated with blockchain technology. The NFT is the artwork. The wine and a private To-Kalon Vineyard tasting are basically bonuses.

The transaction must be done using Ethereum digital currency. It also comes with a lengthy legal disclaimer that says, “You should not purchase our NFTs with a view to investment, retail or speculation.”

This combining of NFTs, digital art and wine has occurred in the Pacific Northwest. Andrew Januik is the second-generation winemaker at Januik Winery-Novelty Hill in Woodinville, Wash. His parents, Mike and Carolyn, started the winery in 1999 while consulting for the Alberg family and their Stillwater Creek Vineyard — a gem in what is now the Royal Slope American Viticultural Area. The late Tom Alberg was involved from Day 1 at Amazon, which helps explain the visionary approach to the wine industry and early adopters of technology. Along with his friend, cellarmaster Grady Kenealy, Andrew Januik first began to follow the rise of NFTs in the sports world. As they got ready to release Andrew’s limited 100-case run of his Baba Yaga wine — named for a witch that lives in a house held up on chicken legs — they thought it would be fun to issue an animated NFT of the label and include a bottle of wine and a special tasting, all for just .18 Ethereums. (That was equivalent to about $245 on Sept. 19). According to Andrew, “This has brought eyes to the brand that never would have seen it.” The hurdle was most of the people called up and wanted to buy the wine on their credit card. That’s not how NFTs are traded.

Sales of Baba Yaga wine have been brisk. Have they sold any NFT? No.

In the Horse Heaven Hills, where the Januik family sources grapes for some of its most prized wines, Mike Andrews and his son, Jeff, have been farming land that has been their family since the 1920s. As they transitioned the property to wine grapes starting in 1994, they concentrated on growing exceptional fruit that would factor into nine bottlings on Wine Spectator’s Top 100, including the Columbia Crest

RICHARD DUVAL IMAGES Jeff Andrews is the managing partner of Andrews Family Vineyards.

2005 Reserve Cabernet Sauvignon — Spectator’s No. 1 wine in the world for 2009.

Last year, when Andrews Family Vineyards unveiled the Trothe project with its 2018 Cabernet Sauvignon, it became the first winery in the Northwest to accept Bitcoin and Ethereum digital currencies for wine.

This summer, when I spoke with Jeff, he said the family remains in the exploratory phase of an NFT project.

“We need to add meaning to the wine beyond mere ownership to have this make sense,” Jeff says.

Whether that is an enhanced experience in the vineyard or something else, it does pique the Andrews family’s interest.

“We don’t want to create a 'techno barrier' for people who want to enjoy our wines either,” he said.

With at least seven crypto currency apps — each with proprietary and incompatible technology — Jeff is concerned about the lack of standardization and multiple opportunities to confuse his customers.

“With only 150 cases of wine to sell this year, sourced from the best vines in these vineyards, I don’t think we will have a problem moving all our inventory this year,” he added.

Both winemakers I spoke with were also concerned with the environmental costs of dealing with blockchain and digital transactions.

Digiconomist tracks the energy consumption used by Ethereum. A single “ether” transaction requires the same amount of energy as the average U.S. household uses in 5.63 days and carries the carbon footprint of 205,987 Visa card transactions. That equates to the annual power consumption of the country of Colombia with the carbon footprint of Switzerland.

Considering the Pacific Northwest wine industry’s interest in sustainability, organic growing and responsible stewardship of the land — which mirror the concerns of many consumers — those factors weigh heavily on the future of blockchain and wine unless changes to algorithms are made.

Does all this mean Brad Pitt will put a hold on his plans to mint an NFT with his Fleur de Miraval rosé Champagne? Don’t count on it. Right now, the NFT craze is an intriguing way to attract buyers into the wine world.

As this channel matures, it’s also possible that wineries could build in an ongoing “sales fee” every time one of their wine NFTs changes hands.

The wine and spirits world remains quite fragmented, just like the cryptocurrency/NFT world. Until there is a more standardized and regulated approach, it appears that NFT minting could be more of a marketing ploy than a new stream of revenue for wineries.

Add in the currently visible market volatility risks, and this all may fall into the category of “Just because you can do it, doesn’t mean you should!”

Retired banker Jim Thomssen now is known as The Idaho Wine Ambassador. The Minnesota native earned a business degree at the University of Puget Sound with the help of professor/wine economist Mike Veseth prior to moving to the Snake River Valley in 1994.