Switzerland eyes cryptocurrency
Switzerland’s private banks are still living down their reputations as facilitators of tax evasion. It is natural, then, that there should be knowing smiles at news that Switzerland is keen to become a hub for cryptocurrency finance — initial coin offerings (ICOs) in particular.
The Swiss have broken ranks with the many countries keen to curtail the proliferation of ICOs, in which digital or fiat currency is exchanged for digital “tokens” exchangeable for services or assets, or held for speculative purposes. ICO funds are typically used to fund the creation of a business.
The same question should be asked of Switzerland’s approach as should be asked of an ICO itself, or of a cryptocurrency, or any use of the underlying blockchain ledger technology. If it is not there to facilitate tax avoidance, money laundering, or fraud, what is it there for?
The answers always come back to the same things. The ownership of every unit of value in a blockchain network is cryptographically verified, so that it is impossible for a user to spend or exchange what they do not own. Therefore there is no counterparty risk, no clearing of trades and no intermediaries. This means less friction, greater transparency and lower cost. Or so the story goes.
In this context, the Swiss guidelines make broad sense, by making it clearer when money laundering and securities laws apply. A token that can be used like fiat money or a security should indeed be regulated like them. So, in principle there is much to be said for the Swiss approach. The devil, of course, will be in the details of implementation and enforcement. Cryptocurrency, by virtue of its very newness and the anonymity that potentially offers to owners, is ripe for abuse such as fraud and theft.
As a basic structure, though, the Swiss approach is not mad. Some national experimentation can be ventured since there does not seem to be enough money at stake in ICOs to present a systemic threat. If that changes, the Swiss may have to adjust quickly. London, February 20