Zug, a City of 30,000 That Gathers the Best Blockchain Technologies
Zug, a small city with a population of approximately 30,000, is located in Switzerland, a country renowned as a world financial center. The city of Zug, which has been drawing attention for its unique tax advantages, is now attracting cryptocurrency- and blockchain-related companies from around the world, including Ethereum, which is a cryptocurrency, and well-known companies such as Monetas, which provides a cryptocurrency transfer system. With the passing of time, Zug has come to be called "Crypto Valley" in the model of San Francisco's Silicon Valley, which attracts startup companies from all over the world.
Andreas Furrer, an Partner with MME in Zurich/Zug and professor at the University of Lucerne, has been working to develop legal environments and ecosystems for Fintech and blockchain in Switzerland. His law firm MME has also managed ICOs (*) by Ethereum.
*: ICO (Initial Coin Offering): A method for a company to raise funds from investors by issuing its own currency
We interviewed Dr. Furrer while he visited Japan as well as Mr. Kunimi Mabuchi from FleishmanHillard Japan, the editorial supervisor of the book The Impact of the Blockchain (Nikkei Business Publications, Inc.), and Hiroshi Tsuda, who is involved in R&D on blockchain technologies at Fujitsu Laboratories. We asked them questions about the current state of Crypto Valley and blockchain's future.
What's New in Crypto Valley?
------ When reading articles about Crypto Valley, we learned that Bitcoin ATMs have been installed all over the city, serving as a basis for spreading Bitcoin throughout the area.
Furrer: That's right. It started with the Bitcoin Ltd. in Zug. Before it happened, there were not very many transactions; however, thanks to installing the Bitcoin ATMs, residents came to view Bitcoin favorably. The town Zug or the commercial register in Zug accepts Bitcoins for their administrative services. With such a community's approval, Bitcoin got off to a good start.
We are proud to be a pioneer in the blockchain industry. Sharing our wisdom, creating an environment, and building an open community for promising entrepreneurs--these should not be mere words; there should be a visible, tangible place where entrepreneurs can gather together to solve problems. That is Crypto Valley's basic principle.
------ How is the government involved with blockchain?
Furrer: The government and municipalities support the blockchain community and maintain a very close relationship. Zug is famous for its low tax rates, but that is not all the city has to offer. We have held flexible discussions with the government for a long time regarding how to tax blockchain transactions. The underlying assumption is that there is no VIP in such transactions. We are attempting to prepare legislation so that blockchain transactions are conducted fairly and appropriately. In addition, the government has an open-minded attitude regarding ICOs.(**)
**amendment: Since the interview mid-October 2017, the Swiss Financial Market Supervisory Authority (FINMA) is reconsidering its policy
Mabuchi: Switzerland, which is known as the world's banking center, has from the start had a culture that promotes financial markets at the national level and protects market players. This extends to cryptocurrency and blockchain.
In particular, Crypto Valley has established its own tax rates and laws to back up Fintech-related companies. Even with ICOs, which become easily subject to regulation, many big deals have been made, including funds procurement in the amount of 230 million dollars by Tezos, which was likely made possible thanks to the unique legal system.
An Open Ecosystem Where Large Companies and Startups Coexist
------ Crypto Valley is attracting many companies these days.
Furrer: Many companies are interested in blockchain technology. Banks have invested in and set up blockchain-related companies, while startups are attempting to enter the blockchain business. Our idea is to create a community where large companies and startups can directly communicate with and learn from each other--in other words, a community that treats all companies as equal regardless of their sizes.
------ In Japan, some banks have invested in blockchain-related startups. What do you think of this?
Furrer: That is exactly what I hope for the future. Blockchain is a challenge for the current business models of large companies, such as banks, insurance companies, and logistics companies. Though it is also a hard challenge for startups, startups have their own ideas and capabilities. When a large company and a startup confront each other, there are two possible outcomes. One is that the large company works hand-in-hand with the startup, while the other is that it tries to crush the startup. However, as recent examples show, there is no guarantee that the winner in such a confrontation will be the large company. In any case, large companies must consider new financial and other industrial models, and I am interested in what they will do.
Mabuchi: In Switzerland, the government, large companies, and startups aim to realize an ecosystem where all can openly coexist. Thus, it can be said that Switzerland is one of the world's leading hubs in applying blockchain technology, especially in the financial field.
Tsuda: Fujitsu is also actively working to achieve co-creation with startups by holding venture programs, pitch contests, and other events. The field trial of a rewards program we jointly conducted with Chiba City and Chiba Bank was one such program. In it, we verified the high transparency and reliability of blockchain technology by collecting and analyzing participants' behavioral data.
What Does Blockchain Bring to Us?
------ Which industries do you think will likely experience business model transformation in the future?
Furrer: Transformations will be prominent in the brokerage industry because the essence of blockchain is brokerage services. Banks' operations are based on trust; banks provide trust in transactions between two parties. Likewise, blockchain serves as a trusted intermediary in transactions between two parties. Use of blockchain as an intermediary enables direct transactions between players without an intermediary's involvement. In the next few years, I expect transformations will occur for various types of companies, including banks, insurance companies, and logistics companies.
------ Do you think Crypto Valley has a bright future?
Furrer: I hope a good future awaits. From a global perspective, the number of blockchain-related players is not yet many. We hope to provide liberal, open-minded support for all blockchain-related players on the front lines.
As an attorney, I sometimes have doubts about blockchain technologies from a legal perspective, as I think national laws may impede blockchain's spread in the future. To have blockchain bring about the future we envision 20 years from now, we must solve these legal questions in the present.
Mabuchi: Today, at sites of innovation around the world, companies first develop new technologies and markets, and then nations establish the necessary rules. Now that technology companies lead the world, companies' behaviors have great impact.
Tsuda: Fujitsu, including Fujitsu Laboratories, have been working on blockchain technologies for about three years. Fujitsu has actively participated as a premium member of the Hyperledger (***) project since its inception. I believe blockchain will be a foundation for co-creating new businesses across countries and industries.
Furrer: I think there is deep meaning in the fact that Fujitsu, a leading Japanese company, is working on the Hyperledger open blockchain project to connect blockchains with the actual business world. It is fantastic that a variety of services and case studies have already been provided, including virtual currencies, cross-border transactions, private equity management, and IoT transactions.
It is often the case that Japan does not fully demonstrate its excellent technological strengths to the world, which I feel is such a waste. Looking forward, I hope that Japanese companies will become more active players on the global stage. In Crypto Valley, everyone wants to promote and spread blockchains, so I would like to invite Japanese companies to join us there.
***: Hyperledger: An open source community that promotes the development of blockchain platforms by pursuing multiple development projects simultaneously