Bitcoin business

The Swiss cryptocurrency haven

Swiss city of Zug by pa prisma
"Crypto Valley Zug" in Switzerland looks almost a bit too old-fashioned to be a bitcoin hub.
  • Why it matters

    Why it matters

    • Both the financial industry and politicians are critical of bitcoins, so Zug’s move means much-needed support for the cryptocurrency community.
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  • Facts

    Facts

    • Starting in July, Zug’s registration office will accept bitcoins.
    • About 15 firms involved with bitcoins have their headquarters in Zug, sparking talk of “Crypto Valley Zug”.
    • Banks and at least one city councilor in Zug warn that bitcoins are a means of money laundering and cast doubt on the project.
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Dolfi Müller, the 61-year-old mayor of Zug, will preside over a virtual-finance global premiere on July 1, when the Swiss city will become the first state to accept payment via bitcoins.

“First of all, we will test it in a pilot project,” Mr. Dolfi said.

For six months, the residents’ registration office will accept payment in bitcoins up to a value of 200 Swiss francs, worth around €180 or $200. At the end of the year, Mr. Dolfi and his city council colleagues will weigh up whether to continue being a bitcoin front runner, in a move that is typically Swiss – revolutionary but with a get-out clause.

“When we decided to carry out the project, we had no idea that we were the first in the world.”

Dolfi Müller, Mayor, Swiss City of Zug

“If everything goes well, I can well imagine that other administrative units could also accept bitcoins,” Mr. Dolfi said. “When we decided to carry out the project, we had no idea that we were the first in the world.”

The Swiss newspaper NZZ was the first to report on the project, triggering a stream of journalists calling the mayor’s office.

It all started when an economics student from the St. Gallen University explained to Mr. Dolfi and his colleagues what so-called cryptocurrencies are and how they work.

After the presentation, his head of administration opened a personal account and exchanged 50 franks as a test. “Then after a short consultation with the city council, we decided: ‘Let’s just try it out’,” the mayor said.

Mr. Dolfi is now a convert. “Opening a bitcoin account is as simple as setting up an e-mail account,” he said as he enthusiastically pulled an iPhone out of his pocket.

And it’s no coincidence that Zug, home to just 29,000 inhabitants, is the first city to turn its attention to the virtual currency that is generating a buzz worldwide. Zug is something of a hub for bitcoin firms.

Among the 15 firms which have set up shop there are Monetas, founded by bitcoin star Johann Gevers, and the crypto-pioneer Xapo. Proud talk of “Crypto Valley Zug” already exists.

That might sound over-the-top, but the scene’s participants take it seriously. A few minutes by car from the chic city hall is the startup Bitcoin Suisse AG. About three years ago, a Danish software developer, Niklas Nikolajsen, and two partners set up a company that offers websites to trade cryptocurrencies.

Why Zug? “Switzerland is tiny. It’s easy to hold conversations with the relevant agencies,” said Mr. Nikolajsen, adding there has been constructive dialogue with financial supervisors. And he also pointed to classic Swiss advantages such as low taxes and a secure legal situation.

Asked about Zug’s decision to accept bitcoins, Mr. Nikolajsen gets enthusiastic: “I’m as happy as I could be. This is quite an accolade for our industry. The city’s decision means that cryptocurrencies are a serious matter and will one day prove themselves as a new currency alongside the dollar and the euro.”

Mr. Nikolajsen and his cohorts can well use the support as they face a tide of criticism, above all from banks.

“No Swiss bank was willing to offer us an account; even my private account was canceled,” one crypto-entrepreneur said angrily.

Remittances by customers of Bitcoin Suisse are regularly retained by banks asserting that bitcoins are a means of money laundering.

Not only banks are critical of virtual money. Politicians have added their voices to the chorus of skepticism. City councilor Gregor Bruhin, a member of the national-conservative Swiss People’s Party (SVP), sent the city government a catalogue of critical questions about its bitcoin project. One of his arguments was that because of its wide fluctuations in value, crypto-payments pose a risk to taxpayers.

Mr. Dolfi remains unperturbed by such criticism. He says he has received many e-mails from the general population, and most of them are positive.

“It’s funny that a 61-year-old mayor is more open for this sort of technological innovation than a 23-year-old town councilor,” Mr. Dolfi said with a grin.

 

Holger Alich is Handelsblatt’s Switzerland correspondent, covering the financial industry. To contact the author: alich@handelsblatt.com

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