Tokyo (SCCIJ) – When it comes to cryptocurrencies, Switzerland and Japan are both bucking the global trend of mistrust and worries about speculation, security, fraud and money laundering. Instead, despite their conservative and highly regulated financial systems, the two countries have embraced the rise of digital money and perceive it as a chance rather than a threat. Switzerland has become a global hub for so-called Initial Coin Offerings (ICOs) and Japan is home to the most active trading platforms for bitcoins and other virtual currencies. Both hope to foster business innovation by promoting the world of digital money.
Approval by the FSA
In Japan, the Financial Services Agency (FSA) has approved 17 trading venues for such currencies so far. In principle, some virtual currencies have been accepted as means of payment in Japan since April 2017. However, buying and selling of virtual currencies via online platforms is only legal if the trader is approved by the FSA.
This license for cryptocurrency trading is not easy to get. The prerequisites include a minimum level of equity, separate management of customer deposits and an identity check of customers via a registered letter sent to a Japanese postal address. This caution is now being confirmed: The trader Coincheck (which has not received its license so far) was robbed by hackers of 523 million units of the digital currency NEM but will be able to reimburse most of the lost money to its 260,000 owners.
Lessons learnt from Mt. Gox
The strict requirements in Japan are the lessons the FSA learnt from the collapse of the Tokyo-based bitcoin retailer Mt. Gox in February 2014 with an estimated loss of 450 million dollars. At the same time, the FSA aims to promote cryptocurrencies in order to make the Japanese financial industry more innovative.
Thus, through this rapid legalization, Japan wants to assume a leading role in the digital financial world. This should also stimulate its banks suffering from weak credit demand and, for example, reduce their transfer costs. At the same time, the legal framework should make it possible to regulate and tax cyber money.
Boosting innovation and growth
Investment in the technical infrastructure for the production and storage of cyber-payments could also boost innovation and growth. The required blockchain technology may even have the potential to replace the current server-based internet structure, for example. (A blockchain is a database created through the encrypted concatenation of several computers.)
The Japanese strategy has made big waves. The rapid increase of the value of the bitcoin currency since spring last year is partly attributed to increased demand from Japan as a result of the legalization.
The success is also visible in the Japanese trading platform bitFlyer. According to Coinhills, bitFlyer is currently the world’s largest bitcoin trader with an 80 percent share in Japan and 25 percent of the world market. The platform ran bitcoin transactions for $250 billion in 2017. In its most recent expansion, it received a European license as a payment service provider.
The small canton of Zug has turned into "Crypto Valley"
Switzerland with big ambitions
Like Japan, Switzerland also wants to become a “crypto-nation” as Johann Schneider Ammann, economics minister, has called his own country. At a crypto finance conference in St. Moritz in the middle of January, he was awarded a price for this attitude. According to Schneider-Ammann, it would still be too early for a regulation of such digital money in Switzerland.
There is some proof for Switzerland being a crypto-nation: Of the 10 biggest proposed initial coin offering, four have used Switzerland as a base, according to PwC. The Swiss government sees a huge potential in virtual currencies. At the same time, it is worried about money laundering and the financing of terrorism.
Canton of Zug as “Crypto Valley”
Such worries are not felt in the small canton of Zug, near Zurich, which has called itself the “Crypto Valley”, a word play on Silicon Valley. The association behind it describes “Crypto Valley” as an ecosystem centered in and around Zug with active connections to international centers of blockchain innovation in London, Singapore, Silicon Valley and New York.
Thanks to its business-friendly regulatory framework, deep talent pool and sophisticated infrastructure, Crypto Valley would be quickly becoming a global center for emerging cryptographic, blockchain and other distributed ledger technologies and businesses, the association claims. In fact, Zug has already attracted dozens of leading cryptographic companies and organizations, including Ethereum, Monetas, Bitcoin Suisse, Xapo, ShapeShift, ConsenSys, and Tezos.
Source of myriad of technologies
The argument of Zug that cryptocurrencies, blockchains and distributed ledgers enhance business innovation is also shared by the Swiss government. From decentralized transaction platforms, commercial property registries, digital identities, secure electronic voting systems, and the internet of things — a myriad of technologies is emerging that enable new kinds of digital property, and the secure and efficient exchange of digital assets.
Initial coin offerings are attractive for countries like Japan and Switzerland because of the blockchain distributed ledger technology behind it. One rather negative effect is the speculation frenzy with now hundreds of virtual currencies, but this technology is also disrupting the venture capital industry because it can slash the cost of fundraising.
For example, the Swiss entrepreneur Marc Degen raised $13.5 million last summer with a token sale in Ethereum ERC20 in just one week for Modum, a Zurich based startup for a blockchain-based service to monitor the shipment of medicine. The token holders obtained the right to vote on future payouts if certain milestones were reached by the company.
Text: Martin Fritz for SCCIJ; Photo (top): flickr/Zach Copley CC BY-SA 2.0, Photo (middle): flickr/Sage Ross CC BY-SA 2.0
