Blockchain: Crypto Valley Zug

At least since 2017, the Canton of Zug has evolved into a crypto valley. As a Zug-based commercial law firm we would like to take this opportunity to give you a brief insight into Blockchain, crypto currencies and other promising Blockchain applications.

| Christian Maeder, Andrea Hauser

Blockchain technology

When they hear the word Blockchain most people think of Bitcoin or crypto currencies in general. However, the terms stand for different things: Blockchain refers to the technology used, amongst other things, for crypto currencies.

As implied by the literal sense of the term, Blockchain is a continuously extendable chain of digital data blocks (so-called Blocks) that are filled with information and linked to each other by means of cryptographic procedures.

Each Block contains a cryptographically secured reference to the preceding Block, a time stamp and the transaction data. In addition, data chains are, after appropriate verification, stored multiple times in a decentralized way to all storage media of a network to protect them against falsifications. This results in the same data records being stored multiple times to a large number of decentralized computer systems. Any updates take place for all of the storage media simultaneously. As a result, Blockchain makes falsifications (practically) impossible.

Crypto currencies

Blockchain is well known in connection with crypto currencies. Crypto currencies are a digital means of payment, or assets, respectively. In the most general sense, they are comparable to bank deposits but without conferring a right to cash payout in traditional (fiat) currencies such as Swiss Francs. Crypto currencies may, however, be traded at specific crypto stock exchanges. More than 1,000 crypto currencies are already existing, and several new ones are added on an ongoing basis. Well known and popular examples of crypto currencies are Bitcoin, Ethereum, Ripple, Litecoin and Dash. As for crypto currencies, the data recorded in the Blocks is mainly transactions. Hence, the Blockchain for crypto currencies is a chain of transaction data.

As indicated by the term crypto currencies, these currencies cannot do without encryption. However, it is not the transaction that is encrypted (the transaction is public) but the ownership or the right to dispose of the crypto currency. The ownership or the right to dispose of a virtual currency unit lies with whoever may dispose of the secret, unique Private Key (comparable to the password for an e-mail account which allows the user to send e-mails).

On the basis of Bitcoin, the best known crypto currency to date, we would like to explain in a little more detail how the Blockchain principle works: Transfers of Bitcoins are executed by several computers grouped online with the assistance of a specific Peer-to-Peer application. Unlike traditional bank transfers, no central settlement agent (bank) is required. The sole condition to the participation in the Bitcoin network is the operation of a Bitcoin-Client or, alternatively, the use of any of the online providers (for example for mobile devices). The Bitcoin system is therefore not limited geographically (access to the internet is sufficient) and it may be used across borders. Proof of ownership of Bitcoins may be recorded in personal digital wallets.

The lack of a centralized settlement agent not only allows for an accelerated execution of the transfers, the decentralized approach also increases security of the transactions.

Initial Coin Offerings / Token Generating Events

Crypto currencies are created through so-called Initial Coin Offerings (ICO) or Token Generating Events (TGE), respectively. Nowadays, ICOs or TGEs are often used by companies to create capital. With this type of financing, investors receive so-called Coins or Tokens instead of the traditional shares in the company. Tokens may confer all kinds of rights, for example, a right to shares in the net profit, to repayments of the acquisition price or to the purchasing of future services or products. Hence, Tokens may have a form similar to shares and may increase in value if the Blockchain company develops successfully.

From a legal perspective, a lot of questions regarding ICO / TGE remain open. Depending on the form of the ICO / TGE, a bank license or securities broker license may be required and/or compliance with certain regulations regarding collective investment schemes or anti-money laundering provisions. ICO / TGE may also have tax implications both on the level of the company and the investors. If Tokens are comparable to participation rights, their issuance may trigger one-time capital duty and their trading (if a securities broker is involved) securities transfer tax consequences. If Tokens grant a right to services or products, there are questions around value-added tax that need to be clarified. Moreover, there are different ways that Tokens need to be declared in tax returns of the investors, depending on their specific form.

Smart Contracts

The Blockchain technology has also lead to numerous innovative projects and developments in other business areas. In particular, Blockchain has allowed significant further development of the long-existing idea of Smart Contracts. Smart Contracts are contracts that are settled automatically pursuant to strict rules. With the assistance of Smart Contracts, for example, orders may automatically be confirmed and/or paid subject to certain customized conditions (e.g., the fulfillment of conditions by both parties). This concept allows for individuals or companies to enter into business relationships without knowing each other and yet without any risk or major efforts. In addition, any leak of confidence resulting from the transformation of business relationships into the digital space may be avoided. A role model for Blockchain applications and Smart Contracts is trade finance. The import and export business is well-suited because the numerous parties are based all over the world and they all have to rely on the accuracy of the disclosed status of a transaction. Besides trade finance, the following exemplary Blockchain projects and ideas are noteworthy:

  • Land register on Blockchain;
  • Insurance Smart Contract for immediate compensation in case of delayed flights;
  • In logistics and supply chain management: worldwide secure authentication of Unique Assets (e.g., containers, wagons).

Thanks to the simplified, accelerated settlement and increased security of transactions as well as the related cost savings, the Blockchain technology has the potential to lead to reevaluation of existing business practices in various areas and to ultimately replace them.

Leading Role of the Canton of Zug

The Canton of Zug takes a leading role with respect to crypto currencies: Start-up companies are being set up daily all over the world. Switzerland is often in the middle of it, in particular, the so-called crypto valley around Zug. With reference to the crypto currency Bitcoin, the Canton of Zug has been the crypto valley for years already. The Fintech boom in the crypto valley started off with the establishment of Bitcoin Suisse, Ethereum and Monetas in the Canton of Zug. In the meantime, more reputable companies such as Lykke have settled down in the Zug area.

The digital progress is being actively promoted by the city of Zug. For example, costs up to CHF 200 charged by the city’s authorities such as the city administration office may be paid with Bitcoins. Furthermore, for the first time worldwide, residents of the city of Zug may obtain a digital, Blockchain-based identity which is linked to the Ethereum Blockchain and the objective of which is to be used in the future for e-Voting in polls. Also, the Zug Commercial Register has been dealing with the topics Blockchain and crypto currencies for quite some time. In September 2017 for example, the Zug Commercial Register was the first Commercial Register in Switzerland to register an incorporation by way of contribution of Bitcoin as a contribution in kind. Meanwhile, fees charged by the Commercial Register may also be paid in the crypto currencies Bitcoin and Ether.


Besides the many advantages that come with the Blockchain technology and its applications, there remain several uncertainties in particular from a legal and tax point of view. Although today’s legislation is neutral with respect to technology, it remains unclear if and to what extent existing legislation also applies to Blockchain applications due to the novelty of the construct. There remains a substantial need for clarification of these issues from a legal perspective.

Many aspects of Blockchain and its applications are still futuristic visions. With our diverse team of lawyers, we would be happy to explore with you the options resulting from that new technology. We provide comprehensive assistance in connection with blockchain and crypto projects, in particular with questions around the establishment of entities, Initial Coin Offerings, structuring and many more (more information can be found here).


The content of this newsletter does not constitute legal or tax advice and may not be used as such. If you need advice with regard to personal circumstances, please reach out to your contact person at Reichlin Hess AG or to the authors of this newsletter.

Our experts for crypto or blockchain related legal advice would be happy to support with any questions you may have regarding this topic (please see here a short description of our services offered).

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