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June, 2018

Shanghai startup launches blockchain platform to fight wine counterfeiting

Original article: The South China Morning Post

Shanghai-based VeChain has launched a blockchain solution to fight wine counterfeiting, inking a deal to certify wines from France's Pierre Ferraud and Fils on the platform. The wine will be sold throughout Shanghai in Waigaoqiao Direct Imported Goods (DIG) retail outlets. Thus far, 10,000 blockchain-enabled bottles have been shipped to DIG. That figure is expected to reach 100,000 by 2019. 

Analysis:

Wine is one of the most commonly counterfeited consumer products in China. The number of bogus bottles on the market is astonishing. 30,000 bottles of counterfeit imported wine are sold per hour in China, according to the Interprofessional Council of Bordeaux Wine. Last year, Australian wine critic Jeremy Oliver told the Weekly Times that the average bottle of champagne in China may be filled up to seven times. Half of wines with a retail price of US$35 and up in China are counterfeit, he said. 


Cheap Chilean wine is often what's really in those expensive bottles. Chile is China's No. 2 wine supplier behind France. A report by Forbes last year pointed out that Chilean wine is plentiful in China because of a bilateral trade deal between Beijing and Santiago. The deal ensures Chilean wine is imported into the PRC virtually tax-free, instead of being hit with the usual excise tariff of 50% of a bottle's value. Meanwhile, Chilean vineyards produce a surplus of grapes. Excess liquid is exported inside shipping containers in bulk, which presumably makes the counterfeiters' job easy - they don't even need to remove the wine from a bottle. 


Counterfeiting of wine in China will only accelerate as the wine market itself steadily grows. According to data compiled by Chinese customs authorities, in 2017 China imported $US2.8 billion in wine, an annual increase of 18% over a year earlier. By volume, wine imports rose 17% to 746 million liters.  


Analysts say that VeChain's blockchain/distributed ledger technology could be helpful to reduce wine counterfeiting. "The VeChain project has a clear value proposition: Blockchain technology has the potential to improve the efficiency of existing global supply chains that lack transparency, interoperability, and are prone to tampering or counterfeiting," says Jeff Chen, a Shanghai-based analyst at the research firm ViewFin. The company's business is well positioned in China market, has a big team, and has several high-profile partnerships, he adds. 


“The beauty of blockchain is that shoppers can see information about the whole life cycle of a bottle of wine from various sides, including vineyards, logistics and retailers,” Fu Yu, a VeChain partner, told The South China Morning Post in May. 


However, ViewFin's Chen cautions against assuming blockchain could expeditiously resolve wine counterfeiting problems. "Blockchain has great potential but we are years away from putting it into widespread use, if and when that happens," he says. "There will be all kinds of unforeseen consequences that have not been considered. It’s like a decade ago when Facebook and Twitter were supposed to bring free speech, and by extension democracy, to the entire world; no one predicted Trump, trolls, and Cambridge Analytica." 


As for VeChain, Chen says that its technology is not groundbreaking. "Its blockchain is semi-decentralized and in many ways similar to existing corporations in terms of governance," he says. Meanwhile, VeChain's consensus model is called “Proof of Authority”: the network is run by a consortium composed of a “steering committee”, like a board of directors, and “node holders” who own the servers it runs on. 


Chen adds: "At the end of the day, it is closer to a cartel than a decentralized, trust-less network. This is not bad from a business perspective, but from a technological standpoint it is at best an improved database rather than a revolutionary new paradigm." 

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