The mega Crypto Summit in Zurich

It has grown into the largest blockchain event in Europe and brings together global speakers, top policymakers, investors and entrepreneurs with more than 1,400 delegates from 37 countries. Readers may ask why Switzerland; the answer is that Switzerland is renowned for its large banking industry yet although it is a liberal country by comparison, the cryptocurrency sector still only constitutes a small percentage of its global financial services industry. Having said that, its cryptocurrency sector has been steadily expanding and currently offers employment to hundreds of people. For example, the so-called ‘Crypto Valley’ which is in the Swiss Canton of Zug has so far between two-hundred and threehundred business entities related to virtual currency.

However, the Swiss government is not inclined to allow virtual currency service providers access to the banking system which will eventual drive them to move elsewhere if prohibition is not lifted. Swiss banks complain of not having clear enough rules on cryptocurrency projects wanting to offer their services to the market. Zuercher Kantonalbank (ZKB) is one of the few larger Swiss banks which catered for issuers of cryptocurrencies but due to fears of treading on legislative grounds, it has closed its doors to cryptocurrency groups. The name Crypto Valley is a reference to Silicon Valley and is in fact situated in a valley. The Crypto Valley Association today has over 400 companies. Switzerland’s unique federalist system has various federal states competing against each other. This creates a healthy environment for an efficient and transparent government and the direct democratic system affords considerable power to the people. Overall, the Swiss people are willing to bring in cryptocurrency, making the sentiment favourable to the cryptocurrency sector as a whole. Blockchain-related regulation is well ahead of its competing geographical neighbours although Malta is currently in the race to issue guidelines to regulate the industry.

It is rather ironic that while the Swiss government is keen to declare the nation as a Blockchain technology hub, at the same time the stern position taken by banks particularly with respect to cryptocurrency start-ups is, in practice, stifling the growth of business in the sector. This is a familiar common occurrence in Malta where legacy banks shy away from handling crypto accounts even though rumours are going around that a number of applications at MFSA are in the pipeline to register as new crypto handling institutions. Banking is essential as an interim way of getting around this problem; Swiss cryptocurrency firms provide the sort of financial services they would have been denied by the Swiss banking industry. It is good to know that, in 2013 the Swiss government approved the Parliamentary Group for Digital Sustainability. It is proposing the acceptance of bitcoin as a digital currency.

The Swiss Federal Railways, which is the government-owned national railway carrier, now accepts payment in bitcoin. This is a significant achievement given that annual passenger traffic reaches 400 million. Also, in Zug it is possible for the residents to pay their utility bills with bitcoin. Since March 2018, Switzerland accounted for 58 per cent of the Blockchain-derived activity with the European region which is a win-win situation. For the Swiss government, taking cryptocurrency on board helps to maintain its reputation as a dominant financial services jurisdiction.

An incessant scourge in digital asset custody is the concern of being targeted by hackers. Even if it might be safer for users to hold their own private keys and keep their assets off exchanges, the more mundane frequency of cryptocurrency calls for more flexible, yet secure methods of asset control. It is no surprise, that all business ventures operating in the Blockchain arena that offer ICOs and raise capital for corporate purposes by issuing tokens are subject to more advanced procedural requirements over-and-above the application of the Anti-Money Laundering Act.

Let me explain some words which have entered crypto jargon. A payment token is used exclusively for making payments, as its name implies. A utility tokens means digital accessibility to an application or service. An asset token is the representation of an established asset. Like in other jurisdictions, the Swiss regulator’s (FINMA) main concern circle around malpractices of money laundering. This is because of the known risks that a decentralised system brings about in terms of anonymity. FINMA also has concerns about the securities market, that is, consumers investing in cryptocurrencies are entitled to expectations of reliability on a par with those of fiat currencies. Consequently, ICOs are in turn three-type categorized: Payment ICOs require anti-money laundering regulation compliance.

However, FINMA does not accept them as securities. Utility ICOs are solely for the purpose of digital access rights in which case they do not qualify as securities by FINMA’s criteria. Conversely, if utility ICO tokens have a degree of investment functionality then they will qualify in FINMA’s criteria of securities. Asset ICOs are considered securities and therefore those legal requirements applicable to securities also apply to asset ICOs. Genuine cryptocurrencies are stored on distributed networks whereas E-Coins were stored exclusively on the Association’s server. E-Coins were supposed to have an 80 per cent backing of tangible assets but in practice, this was found to be less resulting in a loss to investors. Other unauthorized business models were also subject to investigation by FINMA and it has reiterated the importance of investors to carefully weigh the risks that this market may pose.

In conclusion, the message given at the Crypto Summit in Zurich augments the commitment by the Swiss government for Zug. It wants it to classify as a world leader in this exciting industry. In my opinion, Malta should not stand idle in Zug’s shadow but hastens to consolidate its legal and banking set-up to be able to compete with Zug if it wishes to become the Blockchain Island in the Med.