Blockchain companies are looking for the perfect location to set up their businesses. In Europe, mostly two countries are in focus: Liechtenstein and Switzerland. While Switzerland had a strong start, the country has so far failed to properly address the needs of the growing blockchain industry. As a result, companies are now venturing into neighboring Liechtenstein.

Liechtenstein and Switzerland have both made a name for themselves in the financial industry. Due to its greater size, Switzerland is more well known internationally, while the tiny alpine nation of Liechtenstein features an inset blow-up map in its passports, so foreign border guards believe the country really exists.

Liechtenstein is very much real though, even more so within the blockchain community. Together, Liechtenstein and Switzerland are home to more than 600 blockchain companies, employing more than 3,000 staff domestically and many more abroad. About 100 of those companies are currently located in Liechtenstein, says lawyer Thomas Nägele, the rest in Switzerland.

The Swiss “Crypto Valley” in Zug is making an effort to create a blockchain ecosystem

Most of Switzerland’s blockchain industry is located in the so-called “Crypto Valley” in the city of Zug, about 30 minutes south of Zurich. The Crypto Valley is home to blockchain powerhouses like Ethereum, ShapeShift, Xapo, Tezos, Melonport, and Monetas. The top 50 companies in the Crypto Valley employ about 440 domestic staff and are worth an estimated US$ 44 billion, with US$ 2 billion at hand to spend on research and development.

Zug has one of the lowest tax-rates amongst the 26 Swiss cantons. It has a favorable regulatory environment for ICOs and Switzerland ranks first in the world for attracting and retaining talent, as well as for competitiveness and productivity.

The fast growth and centralization of blockchain companies in the Crypto Valley has led to the emergence of an entire blockchain ecosystem, including supporting entities such as specialized law firms and consultancies. The local government is also playing its part, enabling citizens to pay for services in Bitcoin and recently even announcing a Digital ID initiative which is supposed to run on the Ethereum blockchain.

Switzerland’s financial institutions are reluctant to work with blockchain companies

If Switzerland is so amazing, why do more and more blockchain companies decide to set up shop in Liechtenstein instead?

Well, because besides all the efforts being made in Zug, it’s not all roses.

While the government tries to erase roadblocks for blockchain companies, the connection with Switzerland’s traditional financial sector turns out to be more difficult. Swiss banks are under pressure from foreign regulatory authorities to comply to restrictive international KYC (Know-Your-Customer) and AML (Anti-Money-Laundering) regulations, and are therefore reluctant to accept blockchain companies as customers.

Currently, there are only five Swiss banks which blockchain companies can rely on. André Wolke, CEO and co-founder of the Zug-based blockchain company Validity Labs, says, “It is true that the Swiss banks have fallen behind.” Bernd Lapp of Swarm City adds, “It is as if the Swiss financial institutions want to prevent crypto companies from flourishing here”.

And there is more: While Liechtenstein is about to implement their Blockchain Act, creating legal certainty for the industry, legalities in Switzerland are currently not that clear. Switzerland is still on the EU’s grey list of countries who do not yet fully comply to EU financial markets regulations.

Business is regulated by the Swiss Financial Market Supervisory Authority (FINMA), and cryptocurrencies to not require any specific license. Being part of an industry that is still perceived as somewhat “shady” by large parts of the population, blockchain companies are looking for a place where they can operate as officially registered, legal entities.

Furthermore, while the government is making an effort to make it possible for citizens to use cryptocurrencies, skepticism amongst the Swiss population remains high. While it is correct that the government allows citizens to pay for services in Bitcoin, so far only 12 (!!) have chosen to do so.

Switzerland had a strong start, but has failed to address the needs of the growing industry. That’s why more and more companies are tending towards neighboring Liechtenstein. It will be worth watching developments in both countries, but currently, it seems as if Liechtenstein is getting tailwind.