How did Zug, a 800-year-old lakeside Swiss town with a population of around 30,000, get the nickname “Crypto Valley” and become one of the major capitals of the blockchain world? That is the question this article will try to answer.

Zug is the name a town in a canton (or political/administrative region) by the same name in northern Switzerland, about a 25-minute train ride from Zurich. Until it got the nickname “Crypto Valley” a few years ago, Zug was best known in Switzerland for being a tax haven because it is in the canton with the lowest tax rates in the country (depending on your personal circumstances, income tax can be as low as 3 percent). There are around 27,000 companies registered here (almost one for every resident), among them tobacco and luxury goods group Richemont (owner of the Cartier and Piaget brands). Holding/investment companies that do not make money in Switzerland pay only 8.5% corporation tax on their annual worldwide profits; and other companies just pay 14% corporation tax.

This is how Nicolas Ludin, the Managing Director of Zug Tourism, describes the town’s identity: “Zug is international, traditional and local.”

Last month (20-22 June 2018), the town had its first ever blockchain conference (with Ripple CTO Stefan Thomas as one of the keynote speakers). Oscar Williams-Grut, a senior reporter from Business Insider (UK) who attended this conference recently wrote about his trip. Here are a few of the more interesting observations he made and comments from some of those he met during the trip:

Jon, COO of crypto exchange ShapeShift, told Oscar that ShapeShift chose Zug as their base of operations in 2014 due to the town’s stance on cryptocurrencies:

“We knew that crypto was a very new thing and various regulators might view it in different ways… We wanted to find an environment where we thought it would generally be friendly. We identified Zug, and Switzerland in general, as a place that was open to this type of innovation in this space and we thought it was a good place to set up shop… Ever since we set up here, more and more companies are coming here because they see it as a friendly place to do business.”

“I learned why Zug was so early to embrace crypto. It was largely because of one man: Nikolas Nikolajsen. Danish-born developer Nikolajsen worked at Credit Suisse in Switzerland before leaving to set up crypto services company Bitcoin Suisse in 2013.”

Bitcoin Suisse CEO Arthur Vayloyan explained Nikolas’ role in raising awareness of Bitcoin:

“There were a lot of conversations between the founder [of Bitcoin Suisse] and the government — what is this, what is that? He was very active in consulting and educating. Many knowledgeable people today know their thing because they were privileged to have [Nikolas] as an initiator. He understood.”

“After discussions with Nikolajsen and others, Zug put in place clear guidance as to how it would treat cryptocurrency companies and those that dealt with the assets.”

“The new rules helped attract the team behind Ethereum, the second biggest cryptocurrency by value, to Zug. The Ethereum Foundation, which promotes and supports the cryptocurrency, is based in Zug and Bitcoin Suisse helped advise the group on its initial coin offering (ICO) in 2014.”

Oliver Bussmann, the president of the Crypto Valley Association, told Oscar:

“The whole starting point was the Ethereum Foundation. They decided to set up the foundation here and that triggered the set up of a new ecosystem — law firms, tax, accounting, smart contract evolvement firms, startups, universities… There were a lot of informal meet-ups and they had the name already: crypto valley… We are a global leading ecosystem for blockchain technology. To establish that you have to work on all dimensions: startups, investors, governments, corporations, R&D etc. You have to bring them together… This country is really good from an innovation perspective,” he said. “But there are not enough VC companies here locally. The government was always thinking about providing a fund, something like that. But now with the ICO, we have access to a global capital market… We have about 15 requests per day for startup coaching, investor tours, government ambassadors want to talk to us, regulators are calling because we have these frameworks.”

“As well as being a reference to Silicon Valley, Zug actually is in a valley, surrounded by mountains.”

“As part of its crypto-friendly stance, Zug has begun accepting bitcoin as a form of payment for certain municipal services, although not taxes. The city is also experimenting with allowing municipal voting using blockchain, the technology that underpins bitcoin.”

Finally, according to Crypto Valley Labs (a provider of co-working space in Zug), there are currently over 100 blockchain companies in Crypto Valley, including Cardano Foundation, Bancor, Lisk, Xapo, ShapeShift, Parity, Golem, ConsenSys, and Ethereum Foundation.

Featured Image Credit: “Zugersee, Zug, Switzerland” by “Eugene Le Roux” via Flickr; licensed under “CC BY 2.0”