You finally have that bottle of rare, coveted 30-year-old scotch whisky in your hands. You bought it a few years ago, but it’s been in storage. This is the first time you’ve physically touched the bottle. Others that invested in their own bottle of the same scotch aren’t present, but they are rejoicing nonetheless. The moment you had yours shipped to you, their bottles became rarer—and more expensive.

In this case, your hands are the terminus for a spirit sold as a non-fungible token (NFT), the oft-misunderstood and -criticized concept closely aligned with the baffling yet ballyhooed investment option cryptocurrency. This endgame may be surprising for cynics who poke fun at people for spending copious amounts of digital currency on internet memes. While mockery of those that allocate virtual funds on bored apes may prove justified, NFT supporters say such derision may be misplaced when it comes to liquor.

“The value proposition of a spirit NFT is so clear once you understand the process,” says Samuel Falic, the co-founder of the online luxury wine-and-spirits NFT consumer platform BlockBar. “If we could get on the phone with every potential customer and explain how spirits NFTs work, there would be a lot more people on board.”

It’s a notion that is increasingly penetrating the spirits market. Since Samuel and his cousin Dov Falic launched BlockBar last October, the company has partnered with Glenfiddich, Dictador, Patron, The Dalmore, and several other distilleries to release NFTs. It has been embraced by the marketplace thus far: The price of Dictador’s first NFT jumped from its initial offering of $25,000 to $36,000 on the trade market within hours of its release. Fully grasping how these collaborations function, and why they’ve become such a noteworthy commodity, requires a bit of explanation.

How Spirits Work As an NFT

When you purchase an NFT of a liquor bottle, you’re not buying a mere digital image. You’re purchasing the actual, physical bottle. Your new possession isn’t directly shipped to you upon the transaction’s completion. It’s kept offsite by either the NFT platform or the distillery, which also alleviates storage concerns. The digital image acts as a certificate of authentication that confirms that you have the rights to that bottle.

With those rights come a few choices. You can hang onto the bottle as a premium liquor investment. You can re-sell these rights to a fellow investor. You can also make the radical decision of actually drinking the liquor, an action known in NFT parlance as “burning.” When you choose this latter option, the bottle comes out of storage and gets shipped to you. It also gets pulled from the NFT marketplace for good, never to return. The platform behind the initial transaction, which will list the bottle as a tradable asset for all to see, will take the bottle off its website. 

This ends up increasing the rarity of the NFT, which in turn increases its value at a variable rate that’s driven by factors not unlike those that drive bottles on the auction circuit, such as brand and spirit quality. Other investors will know about the burning when it happens: The platform behind the initial transaction will list the bottle as a tradable asset, complete with the owner of the bottle, and will take it down once it’s burned off the market. 

When this happens, a win-win scenario occurs. Other owners of that same bottle win because the value of their investment increased, and you win because you get to drink a “unicorn bottle.” The only way this mutual victory doesn’t occur is if the bottle is a singular offering as opposed to one in a series of NFTs. 

Any bottle can be turned into an NFT, and you’ll see everyday bottles up for grabs on platforms such as OpenSea. In the luxury space, however, the NFTs are unique or rare expressions that are typically paired with one-of-a-kind visceral experiences that stretch beyond the bottle, such as an invite to tour the distillery and enjoy an exclusive dinner with the distiller. 

The items are oftentimes visually arresting: Hennessy entered the market with a two-bottle set featuring a blend of the cognac house’s previous seven master distillers’ eau-de-vie, locked away in a designer chest that’s opened via jade key. The Dalmore offered a quartet of single-malt scotch whiskies spanning four decades, encased in a bespoke display tower. The Dictador’s first NFT foray featured a blend of 1976 vintage rums enclosed in a Lalique-designed crystal carafe. 

The ornate packaging associated with these spirits enable the distilleries the opportunity to tap into a creative element that goes beyond the juice. This is a natural step for some producers. “We think of ourselves as an art house that sells great spirits,” says Ken Grier, the associate creative director at The Dictador. “The 1976 vintage NFT allows us to put together an expression of rum and art as a pioneering investment.” 

This mingling of spirits and art makes even more sense in a larger context. Art is the primary fuel that feeds the NFT phenomenon, and it is an increasingly hungry beast. The NFT market reached $41 billion worldwide in 2021, a number that nips at the heels of the traditional art market—so much so that prestigious auction houses known for selling fine wine and spirits, such as Sotheby’s and Christie’s, have entered the NFT game. 

A finely crafted bottle or display case featuring a unicorn spirit acknowledges the primary market for NFTs while also recognizing crossover appeal in the process. “There is an audience who is passionate about extraordinary art and exceptional scotch whiskey that is also active in the NFT space,” says Claire Clark, the global senior brand communications manager at The Dalmore. “We have had a presence within the art sector with our partnership with Scotland’s first design museum, V&A Dundee, so It felt like a natural space for us to explore.” 

So, Who’s Buying the NFTs?

Today’s typical NFT customer is not too far removed from the “crypto bro” image that many people might imagine. According to BlockBar’s Samuel Falic, 86% of the company’s customers are between the ages of 25 and 34. They’re also predominantly male and from the U.S. 

These consumers also tend to be tech-savvy individuals with an abundance of digital currency. In some cases, an abundance is needed: While most high-end bottles will cost a few thousand dollars out of the gate, others land at a substantially higher amount. Hennessy’s multigenerational cognac, for example, hit BlockBar’s NFT space at $226,000. According to Dov Falic, these prices are driven by perceived market value and not by the platform. “The NFTs on our platform are sold at the suggested retail price,” he says. “The amount comes straight from the brand owners.”

The Falics also view their client base as a mix of collectors and investors, although NFTs possess a unique appeal to the latter group. Purchasing an NFT as a known spirits commodity allows investors to lock in shifting cryptocurrency values when the digital money’s notorious volatility swings in their favor. This transaction shifts assets away from cryptocurrency’s dramatic speculation-charged market movements and towards a sector defined by consistently reliable growth, much like the secondary market for fine and rare wines. In the NFT spirits world, however, “consistently reliable” doesn’t necessarily equate to slow and steady. Rapid price spikes like the 44% increase the Dictador’s Lalique bottles experienced on their drop date are possible.  

Even though buying and potentially selling a spirits NFT via cryptocurrency is modern and flashy, Grier points out that the concept’s core element of investing in stability within the context of a speculative market isn’t exactly new. “In the Gold Rush, most of the money was made by selling picks and shovels,” he says. “The gold offered a lot of speculation, but the picks and shovels were real-world assets. With an NFT, the bottles act as these kinds of assets.”

An Entry Into a New World

When the Falics started BlockBar, they viewed the concept a progressive step in the exorbitant and sometimes maverick world of high-end spirits collecting. This wasn’t a blind assumption:  Dov’s father started Duty Free Americas, an enterprise known for attracting collectors with copious amounts of cash to airports around the world to nab elusive bottles. Being immersed in the duty-free environment allowed the Falics to note challenges within the system which they feel can be addressed within the NFT space. “The difference between an NFT and an auction house or a duty-free store is access,” Dov Falic says. “In those traditional markets, you have to be at the right place at the right time if you want to get a rare or exclusive bottle. Since NFTs are offered online, you don’t really have this issue. Because of this, we see NFTs as a way to democratize the high-end spirits industry.”

There are a few hurdles to clear. While direct distillery partnerships and the security of digital authentication greatly reduces the chances of fraud, concerns about inauthenticity are still present. The overwhelmingly male presence in the marketplace gives it an air of dudebro-ishness. Plenty of people dismiss all forms of NFTs as examples of money and fools parting ways. Still, there is hope that a better understanding of how spirits operate in the NFT space can eventually lead to a broader market. “As NFTs grow, we see a big opportunity to target beyond our current demographic,” says Sam Falic. “We also want to be a generational bridge. We want to bring more young people into high-end spirits, and we want to teach older people how NFTs work.”    

In the meantime, opportunity may abound for the distilleries and crypto consumers currently tapped into the NFT spirit zeitgeist. “In a short time, NFTs have attracted an enviable catalogue of brands, who present exceptional product,” says Clark. “If you are crypto-literate and in the market for something special, NFTs are a great place to start.” The fun is finding out whether that opportunity might end with a profitable secondary-market sell or a post-burn pour from a unicorn. 

Source: Liquor.com
by Rich Manning