In its early days, Silicon Valley was populated by small, ambitious startup companies like Google and Apple Computers.
It was the dawn of Web 2, the ‘Read-Write-Publish’ era of the internet, that marked a sudden wave of platforms that allowed users who lacked technical prowess to participate in the online world, to share and engage with content. LiveJournal and MySpace were some of the earlier incarnations of Web 2; they were followed by Facebook, Youtube, and Twitter.
The sleepy town of Zug in Switzerland has positioned itself as the developmental hub for the blockchain technologies that are hoping to become the backbone of Web 3 – the ‘decentralized web’.
Zug is home to the Crypto Valley Association, a government-supported entity that was officially formed in January 2017 as a way to “take full advantage of Switzerland’s strengths to build the world’s leading blockchain and cryptographic technologies ecosystem.”
According to its website, the association facilitates research, organizes industry events, and provides networking opportunities for startups.
The formation of the Crypto Valley Association was no coincidence. Switzerland’s friendly regulatory environment was attractive to the companies that made the decision to establish themselves there before the formation of the association.
While Switzerland is all the way down at number 33 on the world’s ease-of-doing-business rankings, the country’s low taxes, long-running political stability, and lush economic resources also make it a suitable place. Not to mention its “world-class infrastructure and educational institutions” that provide a steady stream of talent into the region.
Lukas Sieber, executive director of investment in the Greater Zurich Area, told CoinDesk that the highly democratic nature of the Swiss government is a perfect match for startups focusing on decentralized technologies. “Switzerland is the most decentralized government in the world and this is attractive to people who work with the most decentralized technology. The decentralized aspect of Zug and Zurich guarantees stability for them.”
So far, things seem to be going relatively well. According to News.Bitcoin.com: “Switzerland alone brought to market over sixty percent of the largest ICOs,” including the ICO of the since-afflicted Tezos, which raised over $230 million. To show enthusiasm for its blockchain industry, Zug adopted Bitcoin as a method of payment for municipal services in late 2016, despite the fact that very few individuals had made use of the beta version of the BTC payment system that had been launched earlier that year.
Crypto Valley was originally scouted and conceptualized by Johann Gevers, the founder and CEO of Monetas. Gevers reportedly relocated his own crypto startup to Zug in mid-2013 in an effort to create a technological and entrepreneurial culture “modeled on the success of Silicon Valley.”
It has been argued that Silicon Valley has transformed from a melting pot of creative minds and tech talent into a highly capitalistic corner of the world, often cultivated at the expense of users’ privacy and a lack of better alternatives.
The startup culture that once pushed for innovation and originality has acquired a more capitalistic agenda – the services that we have come to rely on in our daily lives collect and profit from the reams of data that users of search engines and social media platforms leave in their wake.
While the startup culture in Crypto Valley certainly does not exist free of its own capitalistic drive, the technologies and products that come out of Crypto Valley are being created as decentralized platforms that will empower their users to do a growing number of things that used to rely upon centralized entities. Transact, create legal contracts, use eGovernance and predictions markets networks – the list goes on.
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So far, Crypto Valley is home to nearly a dozen crypto-related companies, including Bancor, Status, MelonPort, Xapo, and Ethereum.
The Ethereum Foundation
Perhaps no member of the Crypto Valley Association is more exemplary of the spirit of decentralization and innovation than the Ethereum Foundation. According to the Ethereum Project’s website, the Ethereum network was designed to act as a platform for dapps (decentralized applications) that run ”exactly as programmed without any possibility of downtime, censorship, fraud or third party interference.”
The Ethereum Foundation has also launched the Ethereum Enterprise Alliance, which “connects Fortune 500 enterprises, startups, academics, and technology vendors with Ethereum subject matter experts.” The EEA is working toward building a global network supported by “enterprise-grade software capable of handling the most complex, highly demanding applications at the speed of business.”
Trouble in Paradise?
Although Switzerland’s rather progressive governance structure was cited (at least initially) as a reason to establish the Crypto Valley Association in Zug, several blockchain-related initiatives that were aimed to further establish Switzerland’s global position as a haven for blockchain startups were abruptly rejected in late 2016. According to CoinDesk, the initiatives would have also made it easier for crypto startups to hold onto investor’s funds without having to be legally classified as banks.
A representative of the Swiss Federal Assembly explained that “the National Council has not passed [the initiatives] – the issue is closed,” although the reasoning behind the rejection was never clarified.
In September of 2017, the Swiss Financial Market Supervisory Authority (FINMA) released a newly designed set of guidelines for the Crypto Valley companies. While the guidelines stopped short of actually calling for new regulations, News.Bitcoin.com argued that the announcement may have been a “pretext to intervene” to address global concerns about money laundering and terrorism as they relate to cryptocurrency.
In response, the Crypto Valley Association said in a press release that its members would welcome a “clear, comprehensive yet flexible [state] regulation that clarifies the legal status of token launches, tokens and the investments made therein.” The statement continued that a “clear code of conduct” could help without global hygiene practices regarding letting investors know exactly what the risks involved in buying, selling, and trading cryptocurrency are.
Indeed, it seems that although remaining mostly hands-off, the Swiss government has been slightly less laissez-faire than originally anticipated by the founders of Crypto Valley. In November of 2017, FINMA announced that it would be investigating “a number of ICO cases to determine whether regulatory provisions have been breached.”
Although ICOs are not technically regulated under Swiss law, they are not “completely free from legal obligations” (CoinDesk). More specifically, FINMA explained: “Due to the underlying purpose and specific characteristics of ICOs, various links to current regulatory law may exist depending on the structure of the services provided.”
While the November inspection was hardly news in the context of a worldwide push for cryptocurrency-related regulations, it may also have been motivated by the uncomfortably-public spat between the founders of Tezos, Arthur and Kathleen Breitman, and Johann Gevers, the Crypto Valley Association founder who assisted in the formation of the Zug-based Tezos Foundation.
Following the argument, a number of class-action lawsuits were brought against Tezos in the United States, seeking reimbursement for investors who had participated in the Tezos ICO. The Tezos ICO raised $232 million – a record-breaking figure at the time – but accusations that the legal classification of Tezos tokens (“Tezzies”) was misrepresented (regarding their status as a security) brought the tokens’ futures trading to its knees.
While most of the financial value that essentially all cryptocurrencies have garnered up to this point in time has been based on speculation and what the coins and their respective networks “could” be used for in the future, the companies that have taken root in crypto valley have been some of the most promising in terms of real-world application – at least, on the surface.
As the worldwide crypto regulatory culture continues to progress in major world powers like the United States and Russia, Switzerland and the EU may feel pressure to comply with rising standards of KYC, AML, and anti-terrorism legislation. Such regulations have the potential to be a positive thing for the cryptocurrency ecosystem as a whole.
For now, however, the Crypto Valley ecosystem continues to enjoy the benefits of a free market and growing interest worldwide from investors as well as industry talent. Until then, qui vivra verra.