Swiss City to Pilot Bitcoin Payments for Public Services

In an international first, the Swiss town of Zug in central Switzerland will begin accepting Bitcoin payments for government services on a trial basis, the international service of the Swiss Broadcasting Corporation SwissInfo reports.

Zug residents will be able to make payments of up to 200 Swiss francs ($205) using Bitcoin.

Mayor Dolfi Mueller said that the Zug City Council wants to show its “openness to new technologies” and cater to local financial technology companies, BBC News reports. The Zug area is known as the “crypto-valley,” as it hosts more than a dozen companies specializing in Bitcoin-related activities. 

The pilot project, officially approved on May 3, will start on July 1 and continue until the end of 2016. After an analysis of the results, the city will decide whether it wants to continue accepting Bitcoin payments in the future. 

“This is the first time worldwide that bitcoins have been accepted as a currency on a state level,” said Niklas Nikolajsen, co-founder and CEO of Bitcoin Suisse, a Bitcoin exchange based in Baar, not far from Zug. 

Engadget notes that the project is an ideal testbed. Zug has a laissez-faire approach to its economy, even for the relatively market-libertarian climate of Switzerland. And it’s an important financial center ‒ 3 percent of the world’s oil trades through the area ‒ with an innovative fintech sector. 

Fortune notes that the Zug initiative could be motivated by the low transaction costs offered by Bitcoin. In fact, the city is looking for ways to cut costs to compensate for the lack of income from taxes, which are very low.

In recent years entrepreneurs and programmers have made Zug’s crypto-valley a leader in fintech and digital-currencies, according to the Greater Zurich area website. New trading markets, new encryption technologies or new digital currencies are being developed, with room for a wide spectrum of possibilities, including Bitcoin. 

Among the blockchain-based fintech companies active in the area, Monetas wants to develop a decentralized, global system for financial and legal transactions – lightning-fast, with very low transaction fees and without intermediaries. The Ethereum Foundation is also based in the area.

“When digital financial services first came about, we had to build a global center where you could find a safe and supportive environment for emerging technologies,” said Monetas CEO Johann Gevers, referring to the vision to establish a crypto-valley in Zug. 

Switzerland has a long tradition of privacy, stable direct-democratic politics and top class computer expertise, including cryptography and security. The tax environment is extremely advantageous, and the regulatory environment is also favorable because digital currencies are treated as foreign currencies in Switzerland, which means that it’s not necessary to create new laws and regulations, and digital currency trading is exempt from VAT. These are among the reasons Xapo, a provider of secure Bitcoin wallet and vault storage, decided to relocate its corporate headquarters to the Zurich area in 2015.

Not everyone is persuaded that the initiative is a good idea. Representatives of the conservative-nationalist SVP party wrote to the city council inquiring about the legal basis for the council deciding which currencies it could accept. 

“It is highly concerning that a state institution should accept Bitcoin, since it is not a secure currency,” city council member Gregor Bruhin told Neue Zuercher Zeitung. “The city of Zug could undermine the status of cash with its actions.” 

Mueller is much more optimistic: “I can imagine that in the near future it will be possible to pay your tax bill with Bitcoin,” he told the paper.

The Zug initiative is interesting because it’s an official project of a city that, despite being small, managed to become an important financial center in the heart of Europe, and could be imitated by other cities ‒ and even nations ‒ in Europe and worldwide. A lot depends on the result of the pilot project, to be evaluated after the end of the year, and it seems likely that adoption by citizens will be the most important factor in deciding whether and how to continue and expand the project.

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