Switzerland – Bitcoin Zion
- Switzerland and bitcoin share a fundamental ethos - a decentralised governance system that values freedom, sound money and privacy.
- Switzerland is a global financial hub.
- Common sense, avant-garde crypto regulations make Switzerland a role model for others.
- Bitcoin will increasingly find itself at home in Switzerland.
In 2018, a former Swiss president, Johann Schneider-Ammann, called Switzerland a “crypto nation”. Switzerland has been host to a large proportion of global ICOs and, as of last year, some 900 blockchain companies with over 4,700 employees. In the last few weeks its main financial regulatory authority has approved the first crypto investment fund, digital asset custodian and digital exchange. The government-owned Cantonal Bank of Bern is also jumping into the fray and has announced that it will create a platform on which to issue, trade and store digital assets. The Swiss National Bank, for its part, is experimenting with digital currency in a trial called Project Helvetia.
Bitcoin, specifically, is increasingly creeping into Swiss day-to-day life. As of this year, you can buy bitcoin from any train station in the country and use it to pay in over 85,000 merchants. One of the country’s cantons, Zug, also dubbed the crypto valley of Switzerland, started accepting bitcoin and ether for tax payments earlier this year. Axa, Switzerland’s largest insurer, is also accepting bitcoin for the payment of most of its services. You will soon also be able to buy NFTs of stamps and tokenised shares of an alpine resort operating in the vicinity of the city of Sion.
Zion, in several faiths, cultures and even the Matrix franchise, is an aspirational utopia of peace, unity and freedom. Could Switzerland be bitcoin’s Zion?
Switzerland’s founding myth involves William Tell challenging a tyrannical Habsburg bailiff called Gessler (not Gensler, but close). Thereafter, three regions broke off from the yoke of the Holy Roman Empire in 1291 and swore an oath, the Rütlischwur, that founded the Swiss Confederacy. These notions of freedom and independence became the core of a Swiss identity, which eventually developed into a federal state in 1848. From that point on, the Swiss political system has operated a fine balance between unity and a deep distrust of centralised power.
This distrust of centralised power is reflected in its 26 member states, or cantons, which all retain their own parliament, government and courts. Political power is further diffused through its system of national referenda, which makes its population the ultimate holder of political power and guardian of the rule of law. This system has allowed a multi-lingual, multi-religious state to exist without a civil war since the three-week Sonderbund War in 1847.
Switzerland’s distrust of authority extends to foreign affairs. It has famously followed a policy of neutrality in international affairs since 1515, has not entered into any major alliances and has not been in an international conflict since 1815. Despite hosting the United Nations headquarters in Geneva, it was one of the last member states to join the organisation in 2002 after a referendum on the matter narrowly passed.
Switzerland’s domestic political system and international neutrality have made it politically stable, which, in combination with its robust legal system, have made it economically prosperous. These factors made the Swiss franc a safe-haven currency, which until the year 2000, was 40% backed by gold. Switzerland was the last country in the world to operate on a gold standard until the gold-backing requirement was finally removed after the narrow passing of a referendum.
The above factors, complemented by its tradition of banking secrecy, have made Switzerland a major global financial hub. Banking secrecy dates back to the early 18th century in Geneva. It was enacted by the Great Council of Geneva because Catholic rulers were entrusting their wealth to Protestant bankers and neither wanted to be seen to be dealing with each other. As taxation started to creep up at the turn of the twentieth century, and especially with World War I, large amounts of capital started flowing into Switzerland. As a response to further tax hikes and monetary measures implemented by countries dealing with the effects of the Great Depression, banking secrecy became formal federal law in 1934.
The population’s distrust of authority has also translated into a widespread ownership of gold and preponderant use of cash. One in five residents are estimated to own gold. As for cash, a survey by the Swiss National Bank revealed that cash is still king in Switzerland despite the pandemic. 97% of respondents carried cash on them and used it to carry out 43% of transactions. 70% of respondents also kept cash at home as a store of value. As the BBC pointed out, the Swiss value “the anonymity and freedom that cash affords them.”
Within this context, a secure, decentralised, sound, pseudonymous currency might just make sense.
While the US is cracking the regulatory whip and China is trying to enforce a ban, Switzerland is legislating to accommodate cryptocurrencies and become the first major economy to have a clear regulatory framework. By doing this process early and well, Switzerland is on the cutting edge of crypto regulation.
In September 2020, the Swiss parliament passed an act that adapted ten existing laws to give digital assets legal standing. On 1 August, the Swiss National Day, the Federal Act on the Adaptation of Federal Law to Developments in Distributed Electronic Register Technology was duly enacted. This flexible, common-sense approach to blockchain regulation should be a gold/bitcoin standard for other jurisdictions. It provides clear legal standing to digital assets while allowing the law to evolve with future technological developments and not engendering a complex legislative procedure.
Subsequent to this legal framework, if a token does not establish rights vis-a-vis a third party, then it will not be considered a security. Bitcoin, therefore, is considered a means of payment and not a right or a security. This makes Switzerland an interesting jurisdiction for pure payment cryptocurrencies, as there are no additional legal requirements to deal in, or transfer them. In addition to this and despite contrary impressions, Switzerland has a robust anti-money laundering framework, which will help weed out criminal elements from Switzerland. The only risk is that the Swiss authorities make these compliance measures too onerous.
The legal scene is thus set for the cryptocurrency space and bitcoin, in particular, to continue booming in Switzerland.