Mike Barrow is the founder of Costaflores, a boutique winery in Mendoza, Argentina with an interesting twist: through the Open Vino project, it is the world’s first open source winery, selling wine via its own crypto asset.
Below Mike explains what this means and how things work a little differently at Costaflores.
Areni: Mike, for those of us who don’t understand blockchain, can you explain what this means?
Mike: Essentially, blockchain is the technology underneath Bitcoin and all kinds of other Ethereum, other types of cryptocurrencies, crypto assets. It’s the shared common ledger that’s used for a lot of these technologies that are very recent and coming about in very disruptive ways. At the core, what makes them interesting is that it facilitates transactions between people without having to have a third party, trust element or validator. So, we can share something of value like a Bitcoin or a token that’s related to a bottle of wine, without having to have a third party validating our transaction.
Areni: Great, thanks for explaining. So, how do you use blockchain at Costaflores?
Mike: I produce wine in April/May, being in South America. Once we finish the harvest, it goes into fermentation. Once we know how much wine we’ll have for the year, we basically say OK, this is the number of litres of wine, this is equivalent to x number of bottles, 750 ml. So last year was the first year doing this – we had 16,384 bottles. So we issued 16,384 tokens (or cryptocurrencies or however you want to call it). That’s called MTB18. My wine is called MTB – Mike Tango Bravo – for the 2018 vintage, so MTB18. Then we put those 16,384 tokens up for sale and what that allows people do is buy, essentially acquire the right to one of those 16,384 bottles. One token is equal to one bottle.
Areni: How do you set the price?
Mike: During the initial stage we set the price in what’s called an initial coin offering, or I.C.O. This is when we put the token at x price. Once the I.C.O is finished, the tokens go into secondary markets and into crypto exchanges, and at that point it’s basically a supply and demand market-driven force. The objective here is to let the market define the price of the wine and not myself. I’m a tiny producer and I have the issue of what price should I set the wine at? I can make all kinds of efforts to communicate better, to make better wine, to get better response from critics or whatever it is that we do to market our products, but I want those efforts to be reflected in market-driven pricing, rather than me setting an arbitrary price for it.
Areni: And how long have you been selling wine this way?
Mike: Last year was the first year selling the wine by tokenization. Right now we’re doing the I.C.O for MTB19 with the MTB19 tokens, and we’ll continue doing a token issuance every year for every vintage.
Areni: So, when a customer “purchases” a token, how and when do they get the wine?
Mike: Starting in 2021, the 2018 bottles will be ready to drink. The wine needs three years aging, one year in stainless steel or oak (about 10-15% of the wine is in oak and the rest of it is in stainless steel tanks) and two years in bottle. So, starting on the 6th of May 2021, the 2018 vintage is available. Whoever is holding the tokens at that point can purchase the wine through the site. This could be a consumer, an importer, a reseller, anybody in the chain and there are different incentives for different stakeholders along the way. They don’t have to order the wine at that time; they can hold onto the tokens for up to ten years.
Areni: Now, there’s another element to being open source that we haven’t touched upon yet. Can you tell us about how being open source contributes to better traceability of the wine?
Mike: Yes, this goes back to the beginning where we start with transparency by having sensors for all kinds of processes. Basically, everything that’s done in the winery or in the vineyard is documented on an open platform and some of this data is written itself into the blockchain so there’s a public record of what’s happening in the winery, in the vineyard and in the business. Once those bottles become available in 2021 is when the third stage kicks in, about traceability. Essentially, how it works is whoever has a bottle in their hands – doesn’t matter how they acquire the bottle – will be able to scan the back label. This brings them to a site where we ask them to fill in a name, address, personal information, preferences, whatnot. We even ask them to take a selfie with the bottle and then answer four to six questions about the experience of drinking that particular bottle.
Areni: Many would consider this a very invasive process, no?
Mike: Of course, but in exchange for this very invasive process and asking people to take time to share personal data, we give them a second type of token which corresponds to one share of the company. So, basically, you’re taking a consumer and turning them into a partner. The liquid that they have in their glass, now they are actually the owners of that. So now I ask you, what do you think of this wine? Well, you actually own a tiny piece of a vineyard in a winery in Argentina behind this project. And given the back technologies that we’re using for our blockchain, this enables us to create things called smart contracts around this which we can spread dividends for our earnings, have share voting, all kinds of things that these new technologies provide for creating a different type of ethical, sustainable business model facilitated by this underpinning of technologies for our blockchain.