Let’s be honest, when most of us think of Switzerland, we think of three things: chocolate, luxury watches, and secret Swiss bank accounts. However, in the past year or two Switzerland has been hitting the headlines for something entirely different: the blockchain and cryptocurrency hub of Crypto Valley.
Zug, a tiny, charming city located on a 20-minute train ride from Zurich has become famous in the cryptosphere for becoming the hottest destination in the world for blockchain businesses. Zug – or Crypto Valley, as it’s known worldwide – offers a powerful platform for global growth due to its business infrastructure, privacy-friendly legislation, world-class talent (ranked number 1 in the world for ease of attracting and retaining world-class talent), and the openness and accessibility of its local crypto-friendly government.
So, how did a city with a population short of 30.000 became the second largest ICO market in 2017, supporting both a Maserati and a Ferrari dealership? Let’s find out.
What makes Crypto Valley in Zug so attractive?
First off, Zug is just the cherry on top. Switzerland is a leading global financial hub stationed in the heart of Europe with excellent domestic and global business networks, efficient bureaucracy, and low corruption.
The land of chocolate is politically neutral, stable, and predictable, with a highly refined bottom-up democratic political system. Furthermore, the Swiss have one of the strongest privacy cultures in the world, with the first bank secrecy law dating back to 1713.
When it comes to Zug specifically, the tax regime established in the late 1950s is what led it to become what it is today – the richest canton in Switzerland. In the 1960s, the canton consisting of (almost exclusively) agricultural land had the highest debt per capita and one of the lowest average incomes in the country.
Today, Zug has an unemployment rate of 1.9% and a GDP per capita estimated at ~$121,000. Corporation tax is only 8.5% and individual taxes are approximately 23%.
But what about crypto?
The Swiss are making a serious effort to capitalize on the trend of blockchain proliferation and build a robust domestic crypto-centered industry. The support for crypto is coming from all levels of government. On the federal level, the Swiss government, among other things, recently created a Blockchain TaskForce in order to establish a clear-cut framework for companies using the technology.
On a local level, the city of Zug has been crushing it; in 2016 it became the first city in the world to accept bitcoin payments for tax purposes, in 2017 Crypto Valley announced that it’s launching a decentralized ethereum-based digital ID system, and in 2018 it successfully completed its first test of a local blockchain-based voting system.
Furthermore, Zug is the home of the Crypto Valley Association (CVA) – a government-backed nonprofit that aims to build “the world’s leading ecosystem for blockchain and cryptographic technologies.” The CVA is possibly the main reason why many of the biggest crypto projects (including the Ethereum Foundation) chose to incorporate in Zug.
The Association is supporting start-ups and established businesses, hosting various industry events, creating industry standards and best practices, making policy recommendations, connecting the Crypto Valley with other international centers of blockchain innovation, and working on establishing a CSRO with a direct link to FinMa (Switzerland’s financial market regulator.)
In light of the recent Tezos scandal (the most recent, among many), the CVA published a code of conduct in order to hold ICO conductors to a high standard and retain what’s left of conventional investors’ trust in ICOs.
A crypto “valley” or a crypto “slope”?
According to PwC’s research paper, Switzerland dropped from 2nd place in 2017 to 6th place in 2018 in funds raised from ICOs. The reason, many speculate, is because Swiss banks, triggered by the Tezos scandal in October last year, started shutting their doors for crypto businesses – causing them immense operational difficulties and slowly driving them out of the country.
The crypto business community is disappointed, to say the least. While Switzerland is losing business to Liechtenstein, Gibraltar, and the Cayman Islands, the banks are pressuring the authorities to provide them with more clarity on the rules that apply to crypto projects. Their main concern is that many ICOs are not doing KYC and AML checks on their contributors, which puts the banks themselves at great risk. And even though the regulators are actively working on solutions to the problem and the CVA made this their highest priority and objective in 2018, the solution is nowhere to be found.
The recent developments in the banking sector put a serious stain on the Crypto Valley’s otherwise near-perfect track record; the government and the blockchain business community need to work in conjunction and act quickly if they wish to keep their place at the apex of Crypto Mountain.
The author is not currently invested in digital assets.