Justin’s note: “It’s a big experiment. No one has ever done anything like this.”
I heard Mike Barrow say this a couple of weeks ago in Buenos Aires. He was speaking at an exclusive luncheon that Doug Casey invited me to. Mike is the team leader at OpenVino, a wine-backed cryptocurrency project.
That’s right—a cryptocurrency, backed by wine.
It was one of the most interesting business ideas I’ve ever heard—and it’s the latest proof that blockchain technology is taking off before our eyes. After all, OpenVino is using this revolutionary technology to “tokenize” a tangible asset that you can hold in your hand, and of course, drink.
Doug and I were so fascinated by this idea, I decided to call Mike a few days later to learn more about this grand experiment. Today and tomorrow, I’m sharing our discussion…
Justin: Mike, tell me about OpenVino. What is it exactly?
Mike: Well, let me start by telling you what it isn’t. It’s not a product or its own brand.
We’re not developing the software platform nor creating a company called OpenVino nor developing some sort of a certification process. It’s just an open-source project. We’re basically using a digital transformation of Costaflores, which is my winery and wine company. We’re doing this to address the three questions of price, quality, and openness or authenticity.
So let’s break those three questions down in reverse order. The first is how can we communicate the truth?
The idea comes from the software world. In an open-source project, you share intellectual property and openness. So we’re applying that to a small business—my winery.
Justin: How is your vineyard open-source?
Mike: We did this in a few ways.
In the vineyard, we’ve placed a bunch of different internet-of-things (IoT) sensors. These include a weather station and 16 different moisture sensors. They’re scattered throughout the vineyard.
We’ve also put in a 360-degree camera and we’re adding some other sensors. These will allow us to capture environmental data about what’s happening in the vineyard.
We can track the temperature and location of the wine in the winery. We can do this all the way to the point of tracking the temperatures of the bottles in the cold storage stocks.
We can also capture human data. So we track what’s done on a day-to-day basis by the people working the vineyard. We can document what’s going on in the vineyard and in the winery. But we’re taking it a step further.
Next month, we will start publishing all this business data, plus our accounting data. We’ll share how much we spend on the bottles, labels, corks, capsules, packaging, salaries, and taxes—everything you can imagine. Plus, we’ll share how much money we’re making from sales in different locations.
The idea here is to take the books of the company and expose them to the world. I don’t know of any other company that does this. Maybe there are some, but I certainly haven’t heard of any other winery that does this. So this will make us the first full open-source winery.
Justin: But why?
Mike: The motivation behind all this is to answer the following questions: How can we communicate honestly about what we’re doing? How can we also share more data than an organic certification company would do?
Let me explain… My winery has an organic certification. This means that I get a once-a-year visit. The organic certifier will call me a few weeks in advance and say, “We’re going to do an inspection.” Then, they ask me a few questions.
It’s pretty cursory, but this isn’t really their fault. It’s just the way the world works. It would be too cumbersome and expensive for them to be exhaustive in their inspection process and questioning. So organic certification depends on just trusting somebody for what they’re saying.
We hope to build upon that with OpenVino. We want to share our business information and intellectual property with academia, other winemakers, or simply anyone who might wonder: “Why are you doing it this way instead of that way?”
Ultimately, we hope to become a reference point for people studying these kinds of things, from both the business side and the winemaking side.
Justin: I’m surprised you’d want to share all this information with the outside world.
Mike: Well, let me say again that I operate a small business. So I don’t have much leverage in terms of negotiating purchases or anything like that.
But this will allow me to say to the world, “Look, I pay 15 pesos for each cardboard box. And if somebody else wants to offer it for 14, then that’s great.” I wouldn’t have that opportunity if I weren’t publishing that information.
Extreme transparency could be very beneficial for a company of my scale. But I don’t see how this would work for Robert Mondavi, Grupo Peñaflor, or some other giant wine company. But it’ll work for me.
Justin: And how does the blockchain play into OpenVino?
Mike: Okay, so we’ll publish all our accounting data, vintner data, work data, images, etc. on the blockchain.
We’re doing this because of the blockchain’s nonrepudiation function. This will allow someone to look at our data and know that it hasn’t been modified. If it was, the hash wouldn’t coincide. [Editor’s note: Hashing and creating a hash are part of the process of securing a block of transactions to the blockchain. Hashing is designed so that the inputs can never be changed, preventing double-spending.]
The blockchain acts as our seal or guarantee of authenticity.
Now, we could certainly do this project without the blockchain. We could still publish the data. But people would have to trust that I haven’t tampered with the data. I could also pay an auditing company, but then you’d have to trust that third party.
So the blockchain authenticates what we’re telling people. It will communicate truth from person A to person B without using a trusted intermediary.
Justin: Since it’s built on the blockchain, OpenVino will have a token. Right?
Mike: Yes, the token… The token helps answer the second question: What price should we decide for the bottle?
See, you have an understanding that wine’s an interesting commodity. Its price varies by orders of magnitude. One bottle can cost $2. Another can cost $20,000. But they’re both 750 milliliters of fermented grape juice at the end of the day.
Of course, there are different qualities of wines. And there are different stories behind each bottle. But you just don’t see this happen in other types of foods and beverages, or other types of commodities. So it’s kind of an interesting product in that sense.
But this can be an issue when I go to sell wine. Some people will say that my wine’s too expensive for their shops. Other people might say that it’s too inexpensive.
How can we find out what the real price should be? We let the market decide the price.
Also, the quality of wine changes over time. If you take a bottle home and keep it for two, five, or 10 years, the wine’s probably going to be a lot better. Then, the quality of the wine will plateau before falling off.
So the token will address two factors that impact the price of a bottle of wine: quality and variability over time. It’s the second reason why we used the blockchain.
Justin: Could you explain the economics of the token? How many tokens will there be? How will you distribute them?
Mike: Sure… The token will be for a 2018 vintage. We harvested the grapes from the 2nd, 3rd, and 4th of April.
On May 2, we did the final press. We were then able to determine the number of bottles, which was 16,348. So we issued 16,348 tokens on May 6. We put them on the market for sale. This was our initial coin offering (ICO).
Justin: How did you price the tokens?
Mike: This year, we will issue them at cost.
Again, you’ll be able to see the cost of producing each bottle since we’re publishing all that information. Once the ICO is complete, the tokens will start trading on cryptocurrency exchanges.
At this point, people who bought the coins will be able to sell them to people who want the tokens, but missed out on the ICO.
The market will determine the right price of the bottle, since each token represents one bottle of wine. And those bottles will be ready to drink on May 6, 2021—or three years after the ICO.
The experiment is to see how the price of the tokens evolves over time. It will also be interesting to see how factors like scarcity affect the token’s price.
Justin: Will you repeat this experiment?
Mike: Yes, we will do the same cycle every year with 100% of our wine production.
This year we’re issuing a token called MTB18. Next year, it will be MTB19, then MTB20, then MTB21.
So there should be many of our tokens in the marketplace in five to 10 years. Each will have different values based on the stages of storage or drinkability.
MTB stands for Mike Tango Bravo. That’s the wine you and Doug had the other day. And of course, 18 refers to the year 2018.
So yes, we’re using a token. But I want to be clear about something. We’re not doing this to raise money, which is the case with so many of today’s ICOs.
People come up with great ideas. They publish white papers. Then, they hold ICOs to raise funding for their projects. I think that’s a wonderful thing. But that’s not what we’re doing.
We’re selling an actual product that’s already finished. It just needs to be in storage for three years before you can drink it. So each token represents one bottle of wine.
Justin’s note: Keep your eyes peeled for the second part of my interview with Mike tomorrow. In it, Mike explains what really sets OpenVino apart from the other crypto projects out there. In the meantime, you can learn more about OpenVino by checking out the website right here.
And for you wine lovers out there, you might not know, but longtime Casey friend Bill Bonner runs a vineyard at his Gualfin ranch in Argentina. He just released this year’s vintage… the legendary Gualfin Tacana Malbec. You can order a case right here… And if you don’t think it’s the best Malbec you’ve ever tasted, Bill says that he’ll send you your money back—no questions asked.
Today, a couple readers respond to Tuesday’s Dispatch, “Has Elon Musk Lost His Mind?”
I have not heard any analyst say this but, I personally believe that Musk acted that way because he can call upon his closest friends at Google for money IF needed.
Still, he has over-promised and under-delivered for such a long time that when the market moves into a broader correction mode, I think Tesla’s stock price will drop 50–90%, minimum. Even so, most short sellers will miss out, because Mr. Market survives by fooling most of the people, most of the time…
Lithium and copper stocks are an excellent long-range investment as well. An average gas-powered car has about 15 pounds of copper while an EV or hybrid has 150 pounds or more.
As always, if you have any questions or suggestions for the Dispatch, send them to us right here.