Even as other countries have banned bitcoin or are curtailing the cryptocurrency’s effect on the economy through regulatory structures, Switzerland is rolling out the red carpet. In July, Switzerland’s bank regulator Finma approved a license for Zurich-based Falcon Private Bank to establish a bitcoin asset management offering.
The country’s Zug region has also become famous as “Crypto Valley” for its cryptocurrency-friendly regulations and thriving fintech innovation ecosystem. Switzerland is also marketing itself as an “epicenter” for initial coin offerings, or ICOs. The country is even integrating cryptocurrencies into mainstream applications. For example, citizens in the Swiss municipality of Chiasso can pay their taxes in bitcoin, and passengers on the country’s national rail system can buy the digital currency from station kiosks. (See also: Bitcoin Gets a Boost From a Swiss Regulator.)
The primary drivers for Switzerland’s enthusiasm for bitcoin and cryptocurrencies are changed privacy rules for banking institutions. With strict confidentiality clauses in its banking system, the Alpine country has been a leader in offshore private banking for decades. The confidentiality clauses were a competitive advantage for Switzerland against competing banking jurisdictions. Individuals and institutions flocked to its banks to evade exorbitant taxes at home. (See also: Why Is Switzerland Considered a Tax Haven?)
But the country will soon have to compete on an even keel. A spate of recent reports on tax-evading entities and individuals as well as the financial crisis of 2008 have generated pressure for greater transparency among financial institutions. In response, the Organization for Economic Cooperation and Development (OECD) promulgated the Automatic Exchange of Information Act to develop a common reporting standard for tax purposes. Switzerland is scheduled to begin sharing client transaction and financial data with 38 countries from next year onward. (See also: Switzerland’s Declining Tax Haven Appeal.)
A head start in the cryptocurrency and blockchain industry would help the country establish leadership in the financial tech industry. According to research firm Gartner, the business value of blockchain-enabled services is expected to be slightly more than $176 billion by 2025. A public services ecosystem enabled by cryptocurrencies such as bitcoin will also help Switzerland streamline government operations and allow the country to market itself as a hub for fintech innovation. For example, the Zug Crypto Valley has already initiated a digital identity project on the Ethereum blockchain.
There is another way that Switzerland could gain from a surge in cryptocurrency businesses. Cryptocurrencies have elaborate security mechanisms that enable transparency without disclosing identity. Leading banks and financial institutions in Switzerland have backed consortiums to research possible applications of the technology without compromising identities, and they have had some success.
Meanwhile, Switzerland is also leading the charge against the misuse of disclosed client data in places that have lax democratic processes or high corruption. According to Yves Mirabaud, chairman of the Association of Swiss Private Banks, “such data could be sold or used to put pressure on clients or their families.” In such instances, Swiss private banks could step up to protect client data through their blockchain systems, which would reveal only selective information through public keys while retaining critical information with Swiss bank officials. (See also: Will Bitcoin Become the New Swiss Bank Account?)