How the Crypto Valley ecosystem has dramatically changed in ten years and what the lessons for the AI arms race are (Part I / II)
The Swiss Crypto Valley in Zug recently celebrated its tenth anniversary. It is an amazing global success story that has spurned an entire blockchain ecosystem with an international standing.
Photo: The author with the former mayor of the City of Zug Dolfi Müller in 2018.
My first contact with it happened in 2016 when I met Johann Gevers, who was one of the early proponents of the Crypto Valley. It had a big impact on me, resulting in me writing an interview-based book about the Crypto Nation Switzerland in 2018.
Photo: The author on the left with Johann Gevers, second from right, this week.
The Crypto Valley is a wonderful case-study of how a new technology rapidly develops from a grass-root movement into a thriving ecosystem. It also highlights that successful technology-based innovation needs to be rooted in collaboration of different stakeholders from engineers to founders and from politicians to the regulator.
Lastly, the Crypto Valley story showcases how tech ecosystems and its stakeholders change over time as its business application changes.
Ever since the emergence of the Silicon Valley during the Dotcom boom, certain patterns of technology adoption have remained the same. Therefore, I believe, that the learnings from the Crypto Valley can be (loosely) applied to today’s generative AI arms race. I will look into this in the second part.
Zug’s journey to number one in crypto
The early days of the Crypto Valley back in 2023 consisted of an enthusiastic tech-interested group of engineers and coders who met at informal meetups. The small group attracted foreigners who were looking for a liberal framework to experiment with crypto. This is one of the reasons why Vitalik Buterin set up the Ethereum Foundation in Zug.
The small group of crypto enthusiasts quickly grew, attracting pioneers from the US all the way to Asia, culminating in the ICO hype of 2017.
Not long after the Zug government as well as the Swiss financial regulator started to engage with the community, resulting in the ICO guidelines from FINMA in February 2018 and Switzerland’s DLT framework of 2022. They are the foundation of a growing crypto industry that nowadays include Swiss as well as international banks.
As a consequence, the Swiss blockchain and crypto ecosystem ranked as number one globally by CoinDesk in 2023.
It has attracted hundreds of international startups and service providers and created thousands of jobs. Most importantly, it has put Switzerland globally on the map for tech-based innovation and innovation competence.
It is a great success story that no one was expecting back in the early days.
Lessons from the Crypto Valley for the generative AI arms race
I have seen the Swiss blockchain ecosystem change over time. And I think this holds some valuable insights about how tech-based innovation ecosystems change while maturing.
Here are three general observations.
First movers not always win
A firmly held believe in tech is that the first-mover is the winner in a winner-takes-it-all race.
Being the fastest in tech adoption is presumed to be essential.
Looking at the Crypto Valley this is only partially true. While Ethereum as the first protocol based in Zug is clearly a leading global protocol, it has spurned many imitators that are thriving as well. Which protocol will survive in the long-term is not clear yet. The jury on this is still out.
Late adopters catching up
When it comes to crypto services for investors such as trading, custody or wealth management, the initially very reluctant Swiss banks have done a 180 degree turn and now are heavily investing into crypto services for retail and business clients.
With over 30 crypto banks in Switzerland, including family-owned private banks and state-owned cantonal banks, the ecosystem is growing.
This is surprising, as that the original crypto community was very libertarian and anti-financial establishment, proclaiming that bitcoin will kill all banks (you still find some stickers with that slogan in Zurich).
This is a consequence of the growth of the ecosystem. Regulations become increasingly important and the scrutiny from the government increases, forcing startups to adjust.
This can be a problem for first-movers who operated in times when regulations did just not exist.
This is what happened to the first crypto firm in Zug, Bitcoin Suisse. Their application for a banking license was rejected by the regulator based on a lack of compliance in their early days.[1]
From B2C to B2B
With the increased maturity of an ecosystem, the regulatory requirements as well as target markets change. This results in the industry developing from a retail-focused B2C industry into a more B2B orientated industry. As a result, the type of companies as well as the business cases change.
This can be seen in the Crypto Valley in the emergence of institutional crypto exchanges such as Rulematch and SDX as well as entire crypto offerings for third parties by Sygnum Bank.
Maturing markets tilt from B2C to B2B.
Servicing the B2B market requires different offerings (e.g. certification and standards), different organisations (again, certified and institutional) and different teams (from enthusiastic coders to business managers).
For example, one of my clients works with the government and the defense industry. The requirements for the company as well its service are very different to a retail market offering.
B2B businesses are concerned with compliance, data security, cyber risks and certifications. Nothing retail clients are concerned about.
This change can be observed in the Crypto Valley as well, with more providers offering institutional-grade blockchain services to corporations as well as the government.
On a larger scale, the same is currently happening in the EU based on the new Markets in Crypto Assets Regulation MiCAr that is coming into effect this month.
This will have massive impacts on incumbents as well as new entrants, as the regulatory requirements are challenging.
At the same time non-compliance comes with an increasingly heavy cost.
In summary, the Crypto Valley has massively transformed over ten years. It has moved from a strongly libertarian community of individuals to a much more mature B2B ecosystem. In the wake, it has produced winners and losers.
In summary, I expect similar patterns to emerge in the current AI arms race. I will write about this in my second post.