The proliferation of blockchain startups and their mammoth ICOs show there’s a lot of interest in decentralizing applications and services. And though it’s an oxymoron, we’re now seeing a few “centers” of “decentralization” emerging — a handful of cities engaged in serious jurisdictional competition to become the prime innovation hub for blockchain-based technologies.
Places like Dubai, Singapore, and Zug, Switzerland are making efforts to position themselves in the lead, but Zug, known in blockchain circles as “Crypto Valley,” is currently the perceived leader. It is the home for crypto-powerhouses Ethereum, ShapeShift, Xapo, Tezos, Melonport, and Monetas, among numerous others.
With currency so central to blockchain tech and regulation still up in the air, it makes sense that Switzerland would attract a lot of early movers in this space. And Zug has very low tax rates (the fifth lowest among Switzerland’s 26 cantons), a pro-business/growth outlook, and a regulatory environment that allows for the establishment of foundations that can be the designated recipient of ICO contributions. The fact that Switzerland is ranked first in the world for competitiveness and productivity and first in the world for attracting and retaining talent also serve as an advantage.
This combination has spawned an entire ecosystem of supporting entities such as MME, the law firm of choice for many ICOs, and Bitcoin Suisse, which has facilitated over $635 million in ICOs. The local government has even gotten into the act, making it possible for citizens to pay for some services in Bitcoin and recently announcing a Digital ID initiative running on the Ethereum blockchain.
To get a close-up look at how the ecosystem and regulatory environment in Zug is evolving, I took a trip there last month with a group of 34 other blockchain enthusiasts.
Here are some of the key lessons I came away with:
1. If you’re confused by what blockchain means for business, government, and society, you’re not alone. Even the most advanced jurisdiction in the world is still figuring it out. The government and business leaders in Zug are very transparent about the fact that they don’t have all the answers. They are just moving as fast as anyone to figure them out, leveraging the fact that Zug’s cantonal government is fully supportive of the initiatives and very pro-business. Though much was made about the citizens of Zug being able to pay for services with Bitcoin, the reality is that only 12 (that’s right, 12) have actually done so.
2. The Crypto Gold Rush is happening, but mainstreaming is far from a certainty. In Switzerland, business is regulated by the Swiss Financial Market Supervisory Authority, (known as FINMA), but cryptocurrency companies do not require any specific approval or license. Under that law, cryptocurrencies are assets rather than securities. This makes Switzerland, in general, and Zug because of its established ecosystem, particularly attractive to startups.
At the same time, traditional Swiss banks are still leery. Many of them have felt the sting of foreign, particularly US, legal and regulatory impact in pursuit of “Know Your Customer” (KYC) and “Anti-Money Laundering” (AML) violators. From what we heard, there are approximately five Swiss banks that blockchain startups can consistently rely upon. One expert I spoke to advised somewhat jokingly, “Don’t mention bitcoin” when talking to banks.
3. You need an ecosystem. But that’s easier said than done. It will take an entire range of auxiliary services to support the more agile, more nimble, and flatter organizations of the the future. At the same time, ecosystem builders have to be aware of the constraints of the larger society in which they are located. Switzerland’s immigration policy and high cost of living make it a very challenging place to relocate to and to set up a large business in. Immigration policies are up to each canton, but the numbers are capped, and there’s a waiting list logjam. So, despite its status as a gravitational center for cryptocurrency-based startups, Zug doesn’t currently seem an ideal location for companies needing to onboard a huge workforce.
But that’s where the Crypto Valley Association has stepped in. Founded within the past year, this consortium of 16 founding members includes Thomson Reuters (which has a global innovation hub in Zug), iProtus, Hochschule Luzern, PWC, Inacta, and Consensys. It is led by the former CIO of UBS, Oliver Bussman, and has established working groups on startup onboarding, investments, regulatory policy, and more, all with the goal of simplifying the experience for people and companies looking to set up shop in Zug. At the same time, through their 4-5 events per month and their newsletter, they seek to educate government officials and the larger society about the benefits of becoming a world-class jurisdiction for blockchain technologies.
Why Zug is important to watch
It’s hard to predict how blockchain and decentralization technologies will impact our world. What Zug provides is a microcosm for how business, society, and government interact with each other as this technology makes landfall. Many of the lessons and experiments happening in Zug will be informative to the rest of the world as we begin to encounter the vast changes that crypto will bring.
For more on my recent trip to Zug, you can access the full report (PDF).
Jeremy Epstein is CEO of Never Stop Marketing and author of The CMO Primer for the Blockchain World. He currently works with startups in the blockchain and decentralization space, including OpenBazaar, IOTA, and Zcash.