Silicon Valley or the San Francisco Bay area in California, the United States, has long been held as the world’s centre of technology industry. This area is the origin and the headquarter of famous IT companies such as HP, Cisco, Apple, Oracle, Yahoo, eBay, Google, Facebook, etc, contributing tremendously to local as well as national economy.
Recently, many countries have tried to duplicate Silicon Valley’s success by building similar centres for IT core-companies such as Silicon Roundabout in London, Silicon Fen near Cambridge University in England, Bangalore City in India, Cyberjaya City in Malaysia or Tel Aviv in Israel.
Although the success of these attempts are still far from their original model, they can at least be viewed as interesting attempts to encourage the IT industry of each country.
In the FinTech era nowadays, the location which has gained increasing significance is the ‘Crypto Valley’ near Zurich, Switzerland. It strives to become the centre for Blockchain technology and modern financial companies relying on cryptography technology.
Crypto Valley is the area around Zug, a small lake-side town 25 km south of Zurich, Europe’s financial centre. Currently, there are approximately 15-20 Blockchain companies located around Zug. The meet-up events for professionals in this field in Zug attract more than 2,000 participants, which is extraordinary considering that Zug’s population size is only about 120,000 people.
In the past, Zug used to be the administrative area with the lowest average income of Switzerland. Its local economy relied on fishery and manufacturing industry. However, due to the lowest tax policy in Switzerland coupled with its location near Zurich, one of the world’s financial centres, Zug becomes an ideal location for hi-tech financial industry like Blockchain.
What makes FinTech companies differ from general IT companies is the customer’s behavior to engage their ‘money’ or personal assets with the company’s products or services. High net-worth customers need high privacy. They do not want the world to know where their assets are located. Thus, these FinTech companies must strictly maintain their customers’ confidentiality, for which there is no better place in the world than Switzerland.
FinTech companies headquartered in Switzerland are likely to gain high credentials and trust from the financial world. This represents a competitive advantage against FinTech companies in the United States, whose data could unknowingly be hacked by Intelligence Agencies or being forced to disclose the customer’s information for security reasons at any time.
Switzerland also has a very stable political climate. The Swiss Neutrality policy with insists on non-interference of other countries’ affairs has been maintained for several hundred years, which survived Switzerland from wars. The quality of life in Switzerland has also been the forefront of the world, ensuring a good life to those who live there. Given the capable human resources and having Europe’s leading IT skilled-professionals, the companies to locate here will have no difficulty finding manpower.
Another interesting point is that Switzerland highly prioritises democracy, especially at the local administration level. The process for citizens to propose amendments to the legislation is not so difficult, which is ideal for new technology such as Bitcoin to challenge the old rules of the old financial world.
Bitcoin companies may have problems negotiating with governments or financial regulators in the United States, Russia or China to loosen the regulations, but not in Switzerland. Currently, the Swiss Ministry of Finance and the national financial regulator or FINMA are getting ready by planning the regulations to accommodate these FinTech companies in doing business. Besides, the tax policy also makes Switzerland stand out in FinTech world, since in 2015 the Swiss government announced an exemption of value-added tax for Bitcoin, which becomes a crucial incentive.
One of the first FinTech companies to discover and pioneer Zug town as Crypto Valley is Monetas, the modern financial platform company founded by Johann Gevers, a South African businessman. (He named it ’Crypto Valley’ and promoted it to the world.) But the company which has pushed Crypto Valley to the global stage is Xapo, a Bitcoin Wallet company which has moved its headquarter from the United States to Switzerland in 2014 for the same reasons. Ever since, it has been the model for other Bitcoin companies to relocate to Switzerland.
Another important organization located in Zug is Ethereum Foundation, a non-profit organization responsible for Ethereum Project - a decentralized processing software like Blockchain which has been hugely popular recently. Vitalik Buterin, a 22-year old Russian prodigy Founder of Ethereum, is also based there. It plays a role in attracting Blockchain enthusiasts from around the world to work in the same place.
The Zug Municipality also tries to attract FinTech companies to relocate to Zug by issuing incentive policies to these companies, and even accepting Bitcoin as a mode of payment. (Although it is merely a gimmick, since not many people are using it.) Moreover, the Swiss Federal Railways are willing to accept Bitcoin as a mode of payment soon.
Despite in its initial phase, Switzerland’s Crypto Valley has done very well so far thanks to the supporting ecosystem. The focus on specialised industry such as Blockchain makes it easier to market and promote. The acceleration for Zug as the world’s centre for Bitcoin is also supported by all stakeholders in Switzerland. Even the Swiss Banking Association has stated “If we don’t take part in FinTech, we no longer deserve the title as the world’s financial centre”.