How Long Until Banks Die? Zug Weighs In

Zug is a small town in Switzerland. It has a population of around 30,000. Historically, the town was known for its bike trails, fresh air, and postcard-y views. These days it has a new draw: blockchain. Zug has morphed itself into “Crypto Valley,” and comes in at number three on BREAKER’s own blockchain-city rankings.

Oliver Bussmann’s job is to grow this community. After 30 years as an IT executive (with stints at grown-up companies like UPS, S&P, and Deutsche Bank), he now runs the Crypto Valley Association, an organization of 750 members, half of which are start-ups. I met him in Amsterdam’s Money 20/20 conference, where he reveals why Switzerland is such a blockchain magnet, what the rest of the world can learn from the Valley’s success, and why we might soon be done with our banks.

Switzerland is famously known for being “regulation-friendly.” What, specifically, is the country doing right?
As an investor, you hate uncertainty. So the Swiss regulators came up with a very good token definition framework. They have very clearly defined what is a payment token, a currency token, a utility token, and an asset security token.

Did your group have any influence on this?
We did it together. We held events, and the regulators spent time on Q&As. Last September we gave them a lot of information on how tokens should be classified—food for thought.

And they adopted most of that?
They simplified it. I think they would say we were maybe too specific, because we had too many lawyers. [Laughs.] But I think it’s important to have this influence. And with an association of 700 members, the government cannot ignore you.

So the Swiss government is pretty crypto-savvy?
The local tax authorities have a crypto background. There’s expertise. One reason is that in certain states in Switzerland, we can pay public services with bitcoin.

“Friendly regulations” can’t be the only reason that Switzerland is such a crypto-haven. What else is the lure?
The second catalyst is the research institutes. There are a lot of leading universities that already have blockchain in their boardrooms. IBM and Google have their blockchain headquarters and research here. And now the universities—like the University of Switzerland—are putting this on their curriculum. There are 35 papers on blockchain in [Swiss] academia.

What else does Zug have going for it?
The quality of living is also attractive to people. If you like to cycle, swim, ski, etc, everything is close by. It’s a very nice place. It’s very safe; crime is non-existent. Also, you have this decentralized way that [the Swiss] are governed. They even have direct votes on specific topics. So the culture is “help-yourself.”

That’s very crypto!
Yeah, exactly. So for the crypto business, the mindset is ideal.

What does the Crypto Valley Association do, exactly?
We meet to discuss topics like on-boarding, communication, research, technology, cyber security. We have working groups. People meet and work on issues to be solved.

What’s the main goal of the organization?
We focus on, “How can we bring startups into Switzerland?” So we built teams to help people on-board, and give them a clear path. There’s now a whole industry here—legal, tax, accounting, marketing, and software development. In just one trip, you can set up your business. It’s very similar to Silicon Valley, in that you have all the involved parties you need to start a business.

What’s your key learning from your time with the Valley?
If you want to be successful, you have to manage multiple dimensions. You have to manage the startups, the investment community, the government community. You need the public behind you. You have to engage with events. You don’t do this top-down. You empower communities. That can really drive an agenda.

The blockchain is still, obviously, largely in the “potential” phase.  What do you see as the biggest challenge to actually make it a reality?
I think the technology still has to mature—from a scalability, performance, and cost of doing business perspective. And second—regulations are not just about ICOs. For example, is a smart contract legally binding? And third, governance.

In the blockchain community, there’s a divide between the purists who want to “change the world” and the corporate pragmatists, who are like, “Let’s use blockchain to trim 5% of costs from the supply chain.” Where do you stand on this?
I think these kinds of discussions are necessary. Especially if you’re in business for many years, you see that both extremes will have a hard time being successful. I don’t think that we’ll have a blockchain Big Bang. That’s not how it happens.

Blockchain Big Bang?
It will not just change everything—Bang!—all at once, boom.  I believe it is more in the middle that you will see a portion of the value chain that will be disrupted, and then you move out. You find a small success. And then you expand, instead of hoping that everything will be disruptive in one step.

Got it. What’s your vision for blockchain in the short-term, medium term, and long-term?
I think in the next 12 months, the funding issue will be professionalized. The move into a security and asset token will increase the credibility of the business. And it becomes a threat, and an opportunity, for the established capital market businesses. You will see more people moving into production over the next 12 months. We already see this in supply chain. We see this in the financial services. So in different industries, I think we will see more production, and volume going up.

How about in the next, say, three to five years?
We will definitely see more institutional investors, nonprofit investors coming in. So the crypto-asset class will be established as “normal.”

Like an ETF, for instance.
Yes, exactly. And so the industry will be able to embrace this technology.

And in the next 10 years?
I would say the discussion is, “Will banks still provide accounts?”

Whoa…in the next decade?
In the next 10 years, yeah. The next 10 years.

Even established bankers now are thinking about, “Is the role of a bank to still provide accounts?” Or has the wallet provider become the bank?

So that’s a fundamental shift. It’s not the bank; it’s the customer. So you move away from hub-and-spoke environments, like Amazon.  And this puts you, as the customer, in the driver’s seat.

Fingers crossed!

More on the Crypto Valley Association here. Oliver Bussmann: @OBussmann Jeff Wilser: @JeffWilser