Twenty miles south of Zürich is a small town called Zug. It looks just like any other affluent Swiss town, but one that has managed to attract entrepreneurs specializing in digital currency – meaning you can pay for things without needing physical money. By 2014, it was dubbed by those in the financial world as Crypto Valley.
How did this happen?
The 2008 global financial crisis led the U.S. to take severe measures when it came to offshore accounts. With low taxation of foreign corporations and individuals, it was no wonder that Switzerland became a preferred tax haven. UBS and Credit Suisse were fined millions of dollars by the US Department of Justice and the Internal Revenue Service in 2009 for allowing tax evasion.
An end to its status as a tax haven forced Switzerland to look at other options to remain relevant in the banking sector. The answer came in the form of a cryptocurrency and digital payment system called bitcoin.
In 2016, bitcoin received a global investment of $1.4 billion and hot a ton of money flowing through it. This offered an opportunity for Switzerland to set itself up as a cryptocurrency hub. To do that, they had to create regulations allowing companies dealing with cryptocurrencies to flourish – a process that has caused headaches for other governments weighing the advantages and disadvantages of the technology.
Bitcoin protects the identity of users which led some to use that advantage for nefarious purposes. For instance, it was used on Silk Road, a site that was engaged with a number of illicit activities such as drug dealings and unlicensed firearms.
The troubles concerning bitcoin don’t seem to bother a number of Swiss citizens who have a mind for technology along with some libertarian views. For them, bitcoin provides an opportunity for them to make payments without the need of a bank or credit card company.
The aim of a decentralized financial system is what drives Johann Gevers, a South African financial entrepreneur. Gevers came to Switzerland in 2012. His company, Monetas, provides a digital system that allows any currency, including bitcoin, to be transferred around the world at low rates. He believes that too much power resides with just a few hands which can result in massive suffering, citing the 2008 financial crisis as an example.
The reason Gevers chose Switzerland was simple: it has the most decentralized political system in the world and efforts like his are seen as opportunities rather than threats. He was soon followed by other cryptocurrency startups who liked the idea of a country that is open to non-traditional ideas about currency.
Zug, the small town where Monetas and a number of other cryptocurrency companies are based, is embracing the technology. The local government lets its citizens pay for services using bitcoin.
This open-minded adoption of the technology is not restricted to Zug alone. Bitcoin Suisse has installed 10 bitcoin ATMs across Switzerland that accepts euros and Swiss francs then returns a slip of paper with code representing the corresponding bitcoin value; scanning the code using a smartphone gives the user their “money.”
While other world governments are trying to figure out ways to regulate bitcoin technology, the atmosphere in Zug is forward-looking: companies are looking for ways to use the technology beyond banking.