Counterfeit wine is a billion dollar market – approximately $3 billion per year says Maureen Downey, an expert on fake wine. One wine fraudster, Indonesian Rudy Kurniawan, is serving time for selling $500,000,000 worth of fake wine.

Shanghai-based blockchain company BitSE and Direct Imported Goods (DIG), China’s largest importer of fine wines, are working together to place wine on a proprietary blockchain to solve the counterfeiting of fine wine. Empowered by an Ethereum-based design, DIG is in the process of placing one million bottles of wine on BitSE’s VeChain platform.

Operating at exhibitions and in the Shanghai Pilot Free Trade Zone, China’s first free-trade zone, DIG imports 30% of the wine brought into the country. The 2016 figures released by China’s Customs Department show its wine imports were 638 million litres in 2016, representing a 15% increase over 2015. The import value in 2016 for wine imported into China was US $2.364 billion.

“We are able to significantly enhance the efficiency of the supply chain management system by integrating it with blockchain technology,” says DIG Vice President Cici Li in a video by professional services network PwC China, which brought the two companies together for the initiative.

According to Li, the major improvement is full-traceability from wineries overseas and informal participants throughout the life cycle of the wine.

“[C]onsumers will be able to access relevant information through a mobile application with the blockchain technology,” explains Li. “This can involve different players to update information on a single trusted and real-time database instead of the current time-consuming mechanism of isolated systems maintained by different players, and prone to security risks. Consumers can easily obtain trusted information, such as ingredients, origin, year of production, and the name of the producer from an immutable source.”

The VeChain app, or the VeChain-enabled DIG app, provides information about the winemaker, a particular wine’s history, the date of manufacture, shipment to China, logistics information and any certifications provided by DIG or other organizations.

The companies can also communicate with customers through the app to get feedback on specific wines, as well as information on how many bottles have been consumed. Such a wellspring of information about one bottle of wine among thousands in a supply chain is unfeasible in centralized databases, for each company in a supply chain generally has its own management system. Blockchain, too, presents its own challenges.

“Blockchains such as Ethereum and Bitcoin were designed to store the transaction hash and the transaction hash is designed in a very simple standard format,” says DJ Qian, founder of VeChain. “But for commercial data, it cannot be stored on such a format because each company has a lot of data. Some companies have over 1 petaflop stored in their centralized database. We cannot easily put such data in blockchain-based product products for commercial enterprises themselves.”

Qian, a former 12-year vet at IBM, adds: “We need to get creative in the way we store data on commercial blockchains. To do this, we store some key information on the blockchain itself, just as in Ethereum and Bitcoin. For other data, we use a combination of traditional databases and blockchain hash technology.”

VeChain currently provides several types of chips to DIG, which are used depending on the value of wine. Some can even retrieve environmental parameters, like vibration and temperature.

“For high end wine and high end spirits, we have one chip as thick as a sheet of paper you can put on top of the bottle,” elaborates Mr. Qian. “When the bottle is open, the chip’s antenna is destroyed. This protects the wine bottle from being refilled with different wine and counterfeited.”

This Max Keiser exclusive article was written by Justin O’Connell, a financial technology researcher focusing on blockchain. He founded the companies Gold Silver Bitcoin and Cryptographic Asset, as well as helped to launch the largest Bitcoin ATM software provider in the world. His work has appeared in Bitcoin Magazine, Coin Desk, Crypto Coins News, Hacked, Merry Jane, NASDAQ and VICE.

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