Justin’s note: Yesterday, I spoke with Mike Barrow of OpenVino—a wine-backed cryptocurrency project. Today, in the second part of our discussion, Mike shares more details about how the project works…
Justin: What differentiates OpenVino from other crypto projects out there?
Mike: Well, there are many interesting projects in the blockchain space. But almost all of them are based around one IT service or another. They’re not related to anything tangible. They’re certainly not related to anything that’s drinkable.
People have a hard enough time understanding those technologies. When you add the blockchain and cryptocurrencies on top of them, it becomes a bit unwieldy.
I think we need to have more projects like this… because people can grab it with their hands and say, “Okay. Now, I understand wine. I understand what a bottle of wine is.”
It’s a way of taking advantage of this new, disruptive technology that’s going to transform everything.
Justin: Will the coin ultimately be redeemable for a bottle of wine? That is, when the wine’s ready to drink, of course.
Mike: Yes, but you would have to give me back the token. I’d then send you a bottle of wine. We’ll sell bottles of wine like this on our e-commerce site starting in 2021. And the only currency we will accept is our token.
But the tokens will be on the secondary market by then, so we won’t control the price.
You could buy the token for 100 Argentine pesos in the ICO, or you could pay 1,000 pesos for it on the secondary market. But it won’t matter to me. One token will still be worth one bottle of wine.
So it’s a one-to-one relationship: one token equals one bottle.
Justin: Interesting. So the blockchain helps ensure honesty and transparency, and lets the market decide the price. What was the next reason for building this on the blockchain?
Mike: The next reason is traceability. We want to know where our bottles go. We want to know what customers think about them. And we want to know the situations the bottles are in when they’re uncorked.
To accomplish this, we’re doing a thing called “You drink it, you own it.” This will begin in 2021, once there’s a physical product from the 2018 harvest.
Here’s how it works…
Let’s say it’s the year 2021. You could buy a bottle of wine by sending me the token that you bought. I’d then send you the bottle. You could also go to the store and buy a bottle with pesos or dollars, as you would with any other wine.
But that shop bought that bottle from me with tokens… or they bought it from their distributor, who would have bought it from me with tokens.
In any case, you now have a bottle of wine in your hand. It has nothing to do with the tokens anymore. On the back of the bottle, you will see a QR code and a serialization number that you can track with your smartphone.
This will prompt you to download an app. After you do that, I will ask you for your name, address, maybe an ID number, and some profile questions.
Now, I know who you are. I know where you are, too. I’ve got your GPS location. Next, I’m going to ask you to take a selfie with the bottle and answer three to five questions about your experience. Are you drinking the wine with dinner? What are you eating it with? Are you at a party? Are you alone? Are you sad? Are you happy?
I have no idea what the questions will be yet. But it will basically be an exhaustive KYC (know your customer) survey. In exchange for this invasion of your privacy, we’ll give you another token.
But this token is different. It’s not related to a bottle of wine. This one has to do with shares in my company. It’s a security token. You essentially become a shareholder—a partner in Costaflores.
This is the whole idea: “You drink it, you own it.” We did this because we wanted to answer the question: How can we take consumers and convert them into more participatory figures in the wine process?
The blockchain allows us to do that. It allows us to distribute ownership of the actual company. Not only that, it allows our customers to help answer questions related to the business.
For example, we may decide this year to distribute 38% of profits as dividends to shareholders, 22% to employee bonuses, and 15% to charity. We could hold a stockholder vote to see which charities our shareholders want to spend money on. We also hold a vote to decide if we want to experiment with a new process in our winemaking.
This is a value proposition in and of itself. We can say, “Look, this is actual feedback we have from the customers around the world. They’re partial owners in the company, and this is what they think about us.”
Mike: We’re just selling a bottle of wine at the end of the day. The token is a voucher for a bottle of wine. You give it to me, and I give you a product.
And speculation on the price of the cryptocurrency is out of my hands. I’m not running the exchange.
That said, it will be a different story when I give away shares of the company to people who drank a bottle. Those will be security tokens. This is because we’ll be giving something away of value that might receive dividends in the future. That’s a different claim.
Those kinds of tokens are a bit nebulous today. But you have to remember that we won’t do that until three years from now. A lot could change between now and then. We’ll also have plenty of time to make sure that whatever we do is legal and makes sense.
This is another reason why we’re going for extreme transparency. It’s why we’re sharing absolutely everything, including the business data. We’re kind of breaking ground here. Plus, we’re doing this in Argentina.
We wanted to be covered if any regulatory issues arise. If there’s anything that comes up, we can point and say to tax collectors or regulators, “Look, we’re doing everything by the book and everything is exposed. If there’s something that you don’t agree with, please explain how and why so we can make adjustments to this.”
The truth is that there’s a lot that has yet to be decided with the regulations around cryptos. So we’re just trying to get ahead of that by being as transparent as possible.
And just to remind you, I have a very small company. This year, we’ll produce 16,348 bottles of wine. That’s nothing in the wine world. I can afford to invest 100% of the company in this experiment. If I had a medium-sized or large winery, I probably wouldn’t take that leap.
Justin: It seems like a lot of extra work to do all this. Do you think it will all pay off?
Mike: Well, let me say this. The sensor data is quite inexpensive. We’re using over-the-shelf, low-cost components like Raspberry Pi and Arduino. But these low-cost sensors didn’t exist five years ago for data collection.
And we’ll already have the accounting and work data anyway. So there’s no additional cost to producing that data. Now, there are some upfront costs that we’re doing to develop the platform and publish the data. Aside from that, our day-to-day costs won’t go up much.
Justin: What about the tokens? Why sell them at cost?
Mike: We’re selling the tokens at cost this year for two reasons. One, it’s an incentive to get the ball rolling.
The other is that we want the market to decide the price of the token and the bottle. It wouldn’t make sense to come up with an arbitrary price point. The only number that I know for certain is the cost, so we’ll begin with that.
This means we won’t be profitable this year in 2018. I mean, we won’t and we will. Let me explain…
This year, we will keep probably 20% to 25% of the tokens. We will distribute them to our team members, myself included. And we will sell these on exchanges to add liquidity. This will incentivize people to buy and sell on exchanges a few months from now.
There will be some tokens that I could sell for a slightly higher price down the road. But that’s the real objective for me. I’m not worried about profitability in 2018.
What I am interested in is the marketing response. I want this to be an interesting story that people talk about. That will generate more interest in the project. It will encourage more people to buy the tokens. It will get more people talking about the wine.
Justin: Will you price next year’s wine the same way?
Mike: For next year’s ICO, cost won’t be the start point for pricing. Instead, we will take the average price of this year’s token and compare it with next year’s cost. I’ll then add those, and divide that number down the middle. That will be the starting price.
Let’s say my cost this year is 100 pesos a bottle and the token goes up to an average of 200 pesos a bottle. Then, my ICO price for the launch for 2019 would be 150 pesos, right? The average between the cost, assuming the cost is the same, and 200 pesos.
By the way, the price of my wine right now at shops in Buenos Aires is about 280 pesos. So there’s no reason that the token shouldn’t rise in value. It’s underpriced as is.
And every harvest will have a different token. Next year, we’ll have an MTB19 token. The year after that, it will be MTB20, and so on.
But some years, we’ll have a higher yield. Some years, the yield will be lower. The climate information that we collect will also fluctuate from year to year. Not to mention, the customer feedback will vary from year to year. Scarcity will also be a factor. Some years will simply produce more or less than the previous year.
So, we’ll see how that information correlates to the token price.
Justin: It’s a fascinating way to price a product. I could see many other kinds of businesses adopting a similar model in the future. That said, I need to ask you something before I let you off the hook… Can you tell me a little bit about the wine?
Mike: Of course, because none of this makes any sense without the wine, right? This is the whole reason for doing this.
Again, the wine is Mike Tango Bravo. It’s a blend of 50% Malbec, 30% Petit Verdot, and 20% Cabernet Sauvignon. But the exact blend will vary year by year. This is because it’s a single-vineyard wine. It all comes from a piece of land in Perdriel, Luján de Cuyo, Argentina.
That’s where I live. It’s a 100% organic vineyard. And the weather varies slightly from year to year.
But the motivation for this blend is that I wanted to make a wine that has enough life to accompany aromatic and spicy dishes. Think Indian, Peruvian, and Mexican food. That’s why we went with those three varietals.
Justin: Interesting. Well, I know Doug and I really enjoyed your wine. So thank you for sharing some with us. And thank you for taking the time to tell me more about your project.
Mike: My pleasure.
Justin’s note: As I’ve said before, blockchain technology is bigger than you realize. This is the latest proof… It’s a real example of how people are using blockchain technology to tokenize tangible assets.
I hope you found Mike’s project as interesting as I did. To learn more about OpenVino, I recommend you check out the site here. Be sure to watch the videos, where Mike shares more about his vision for this fascinating project.
Today, readers respond to Strategic Investor editor E.B. Tucker’s essay: “Why I Decided to Lend the U.S. Government Money”…
Now that was a good article. Thank you!
Seems awfully complicated when you can get 1.89% in a Vanguard Prime MM account.
Is E.B. not concerned that the US government can now take money out of his bank account as easily as putting it in?
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