Jurisdictional Competition

The economist Paul Romer introduced me to the idea of jurisdictional competition about ten years ago and I’ve been fascinated with it since. His TED Talk about charter cities from 2009 is a good primer on the concept.

The basic idea of jurisdictional competition is countries, cities, and regions can compete economically with each other by adopting more favorable laws and social norms.

We are actually seeing this play out right now in the crypto sector with the Swiss Canton of Zug becoming the preferred location to domicile a crypto-currency business.

Zug has even taken to calling itself Crypto Valley.

We have watched the blockchain companies in our portfolio struggle to adapt their business models, financing approaches, and more to US laws. We have been working with them to come up with creative ways that they can continue to operate in the US while executing the crypto playbook. It has been quite challenging. Many have advocated just moving the businesses to Zug, like so many others have done. And that may happen. We are for whatever is best for the founder and the business they create and have no preference for US domiciled companies. We have invested in Canadian companies, Estonian companies, French companies, Dutch companies, German companies, and likely a lot more. Investing in a Swiss domiciled company or foundation would not be a big deal for us.

The crypto playbook is a disruptive one. It is not a new way to raise money. It is a new way to architect a business. The profit motive is flipped upside down. You extract profits with your currency, not your business model. They are so many institutions, laws, even governments that look at that playbook and freak out. There has been pressure for years to rein the crypto sector in. And many rules and laws have been passed. And yet the crypto sector continues to flourish. Some of that is because it is, like the Internet, a global technology that knows no borders. Some of that is because lawmakers and regulators have been wise to tread carefully. And some of that is because nobody wants to drive this sector out of their city or country.

And yet that might happen anyway. It is already happening. And the US, and Silicon Valley in particular, have the most to lose if it does.

#blockchain

Comments (Archived):

  1. William Mougayar

    Not surprised to see you blog on this topic, after yesterday’s tweet discussion ;)https://twitter.com/fredwil…But what worries me slightly is that many of these companies are domiciled in Switzerland as a formality, not physically. Most of them have global staff & 1-2 people in Zug or somewhere in Switzerland, just to check the compliance box.

    1. kenberger

      Partially true, although not quite a BVI or Caymans sort of thing (where it’s all just nameplates).Plenty of actual action going on there, as AVC’ers will hear more about from my direction shortly.

    2. pointsnfigures

      No concern at all. I think that one is overblown. If the US tries to get aggressive on talent or tax/regulate based on where code is created then it’s a worry

    3. LE

      is that many of these companies are domiciled in Switzerland as a formality, not physicallyI am curious why you think that matters ‘not physically’? Really no different than Delaware corporations, right? Or ships with foreign flags.

      1. William Mougayar

        True. What I meant is that it’s unclear if Switzerland’s advantage is likely to remain. It is copiable.

  2. OurielOhayon

    Singapore is also on the way to become an even bigger crypto valley. Many exchanges prefer to register there…

  3. jason wright

    it feels like a race to the bottom. i’m thinking of launching my Toboggen token (BOG) ICO quite soon. all aboard!’extraction & exit’ – how to say that in Zugisch?

    1. William Mougayar

      Too late. I already got one like that in my inbox last week. They raised 30 mil in presale & were oversubscribed, so they canceled their ICO. Plus, their killer feature was a fully retractable toboggan that can fly you to the moon & back in a few minutes. Maybe try to go for a rally-coaster? It would certainly have a better chance for funding, as it has not been done before on the blockchain.

      1. jason wright

        https://shitcoin.me/this is my inspiration.i am waiting patiently for a (not so) poor but definitely unlucky ‘entrepreneur’ to have their name forever associated with ”extraxit’. think Ponzi but for crypto. someone is going to end up in a courtroom, and i have my private list of prospective candidates. i could publish it, but one of them might then sue me, but that would mean having a court looking through their activities, which i very much doubt they would want. it would be an impossible dilemma.i think crypto needs a legal case or two to establish a new reality.

        1. JLM

          .When the first losses begin to appear, it won’t be long.JLMwww.themusingsofthebigredca…

          1. pointsnfigures

            Silver had a flash crash last week

      2. Mark Essel

        Looking forward to the wave of crypto companies that will offer reliable competition to AWS and Google Cloud. Are there any you recommend exploring?

        1. William Mougayar

          I don’t recommend anyone in public, but Golem is one of them in that category.

          1. Mark Essel

            Good to know. I’m waiting for you to throw your hat in the ring (have you already founded your own coin)?

          2. Mark Essel

            I like how you moved up the information stack to ICO services, there’s the entreprenurial spirit

  4. LIAD

    ‘you extract profits with your currency, not your business model’.Written poetically or literally?Profits are ‘non-diluting’. Selling your tokens, no matter their growth in value, is.We haven’t seen circumstances play out where company’s tokens decrease in value so much, coupled with lack of traditional profit motive, that the team loose all Incentives and just walk away. Bit I think we will.

  5. obarthelemy

    I’m seeing it as a probably justified trade-off. Innovation != Good; some of it is, some of it isn’t, and above all tech is amoral so setting boundaries and rules to it seems very sensible.If crypto-currencies/contracts/companies become relevant to Average Joes’ lives, I fully expect my government to be able to enforce the rule of law on them, as it does on people with bigger guns, better lawyers, more muscles… than me.I’m not really sorry it’s impacting your bottom line ?

  6. Dana Hoffer

    Trading stamps anyone – S&H, Gold Bond, Blue Chip…? Legislation exists for these currencies (as they then were). https://en.wikipedia.org/wi…Inventing money – coins, freq flyer miles, points, trading stamps is a cool thing. With real transferability options coins look like the latest hot model on the showroom floor.

    1. Brandon Kessler

      Except that, unlike the examples you listed, tokens are supposed to represent a company’s underlying value. It’s share price under the guise of currency.

  7. Frederico Mesquita

    @fredwilson What are the top 5 elements do you think are driving companies to choose swiss or s’pore?

  8. Brandon Kessler

    “You extract profits with your currency” <— Sorry team, I’ve read all the articles and still haven’t seen one person argue logically that a speculative ‘currency’ can act legitimately as ‘share price.’ Wish @fredwilson would; eager to learn.

    1. JLM

      .I agree more with you than you do with yourself.JLMwww.themusingsofthebigredca…

      1. LE

        The most money can be made when the mass of others don’t fully understand what you are doing or what is going on and they simply follow like lemmings.

  9. itamarl

    @fredwilson do you have a view on when a foundation (non profit) is the right option vs a LLC ?

  10. JLM

    .It sends a shudder up my spine when I see someone domicile a business outside the US predicated on an unwillingness or inability to comply with US law (securities laws).I might have a different reaction if the entity did not seek to do business in the US, but if one wants access to the US accredited investor market it seems appropriate to meet the regulatory framework of the US.I am particularly troubled with the alternative location being Switzerland because of its horrific history:1. The Swiss banked the Nazis in WWII, the government, the war industry (Krupp, et al), and the high net worth Nazi scum.2. The Swiss banks assisted the Nazis in identifying Jewish owned assets and looting them in conjunction with the Nazis. This was literally blood money.Read the story of Bally shoes and how they came to acquire certain shoe manufacturing plants in this time frame. The same Bally shoes for sale in the US today.3. The Swiss demanded “death certificates” from the children of Nazi concentration camp victims to be able to access numbered secret accounts at the end of WWII.4. The Swiss denied the existence of such numbered secret accounts for half a century and then spit them up without any interest when finally caught at their own lies.Swiss banks absorbed this wealth, put it on its balance sheets dripping in blood, and used these same balance sheets — to this day — to meet capital requirements to conduct overseas banking business including in the US.5. The Swiss did and do engage in wholesale tax evasion by providing services which prevent legitimate governmental inquiry into the accounts of foreign citizens even when such inquiries are within the laws of the host nation and the Swiss gov’t itself.6. The Swiss have allowed terrorists to conduct banking business — hidden behind Swiss banking secrecy laws — within Switzerland knowing full well their clients are engaged in terrorism worldwide.Why does one think the Iranians demanded their baksheesh in USD and Swiss francs?7. The Swiss received and held the captured gold of sovereign nations — the gold of the countries conquered by the Nazis in WWII — even when they knew it was fruit of a poisoned tree.8. The Swiss received, held, traded in and facilitated the use of dental gold from the teeth of Jewish victims in the Nazi concentration camp industry.9. The Swiss — to this day — facilitate the holding of stolen artwork looted by the Nazis in WWII full well knowing the flawed provenance of such works.10. The Swiss illegally conducted banking business in the US without American bank charters for years.11. The Swiss are repositories and facilitators for the distribution of blood diamonds coming out of Africa.12. The Swiss — at the national and canton level — engage in a public fiction at to its laws pleading they did not accept secret numbered accounts for the purpose of US tax evasion until a Swiss citizen provided the proof in the form of stolen data for which he was ultimately jailed.13. The Swiss pretended to be neutral in WWII while hosting Nazi medical facilities, R&R facilities, and allowing Nazi troop and supply trains to pass through Switzerland enroute to Italy.The Swiss are nasty little financial wrongdoing facilitators for centuries. When someone domiciles a financial enterprise in Switzerland, it worries me greatly.In the end, this will only serve to attract MORE not less attention. Having said that, Zug is a lovely place.JLMwww.themusingsofthebigredca…

    1. LE

      Old FRONTLINE on this which I just pulled up based on your excellent comment. I am going to try and dig up the film and watch.http://www.pbs.org/wgbh/pag…Update: Interesting PBS says the video is no longer available and the only copy I can find is a $200 copy on Amazon that may not even be legit.Despite having this from 1985 available to stream on their website:http://www.pbs.org/video/23

      1. JLM

        .Sen Alphonse Marcello D’Amato (Senate Banking Committee), Edgar Bronfman (Seagrams heir; World Jewish Congress 1995 lawsuit settled in 1998), and Stuart Eizenstat (Clinton’s Undersecretary of Commerce) were the driving force behind what was revealed as a wholesale scam by the Swiss.A Swiss citizen, Christoph Meili, witnessed Swiss banks destroying WWII era records and ratted them out. He fled to the US and ultimately was jailed for his part in breaking Swiss bank secrecy.The Swiss commissioned a couple of bogus commissions (including the Volcker Bergier Commission) which concluded the Jewish victims had $0.38 in valid claims and then when two Swiss banks wanted to be authorized to merge in the US, they agree to a $1.28 BILLION settlement which by 2015 had been paid to almost a half million claimants.The Swiss did not settle the account for businesses stolen, murdered Jews ratted out to the Nazis, or stolen art and other valuables.The Swiss were actively defending these claims as last as 2000.They are bastards. They are bastards at the highest level, unrepentant.Read: Hitler’s BankerJLMwww.themusingsofthebigredca…

        1. LE

          As opposed to the Germans who paid reparations to our family and still do even to this day. My mom gets a check (because of my Dad, even though he passed away they still pay) and when I was growing up I remember ‘the german check’ which came in the mail iirc once per month.http://www.nytimes.com/2012…How much paid? It depends. I have what I call ‘the boat question’. When I was growing up my Dad told me he got paid less than others. Why? Because when he got off the boat here in this country they asked him how he was at some point. And he said he felt great. The people who didn’t reply that way got paid more. This is a gross oversimplification of what really happened of course. Point being in an unfair system or where you have been wronged (say insurance companies or airlines or Comcast) you have to know how to answer before you answer and think first. I don’t think he ever made that mistake again.

    2. pointsnfigures

      Not me. A very good friend of mine is the corporate tax guy who takes companies out. He hates doing it but it’s in the best interest of shareholders. David Booth moved his biz from LA to Austin. He’s 10% up on his Wall St competitors on Jan 1

    3. kenberger

      fwiw: these points are mostly about Swiss BANKS, rather than just “the Swiss”. And the whole recent gold rush that we are discussing in this and other AVC posts is about disrupting the big bank system.does that make a difference re your point?

      1. JLM

        .Fair play to you. Switzerland is banks and chocolate — I said nothing bad about chocolate.The Swiss gov’t and the governance of the Swiss banking establishment are indiscernible. Literally. The banks control the gov’t and bank secrecy — at the heart of most bank wrongdoing — is enshrined in law.The Swiss gov’t could have intervened at any time they wanted to during the World Jewish Congress lawsuit, but chose not to. No differently than today when it knows that banks are filled to overflowing with looted artwork.They have the laws on the books to inspect the assets/holdings of any bank with a Swiss charter and choose not to.I would further argue that the Swiss-German portion of Switzerland wherein the Nazis maintained medical facilities and R&R facilities was totally complicit in the furtherance of the aims of Nazi Germany thereby violating their gov’t’s avowed neutrality.The engagement of the populace in Europe during the war was much deeper than the US. Germany had a population of 70MM with 22MM men under arms with the balance of the populace engaged in war industries.We had similar war industrial involvement but not as big a chunk of our population under arms. We started the war with a very small contingent in the military and ended with more than 12MM men under arms and the fair earned title of the Arsenal of Democracy as we produced enormous amounts of munitions and weapons.JLMwww.themusingsofthebigredca…

    4. ZekeV

      You make many good points. However, I would point out that there are reasons to domicile in Switzerland aside from banking secrecy. For example, you will notice that many global law firms (Baker McKenzie, DLA Piper, Dentons, etc) are organized as Swiss vereins for reasons that have as much to do with managing conflicts as anything else. Perhaps there is some other advantage to using a Swiss foundation for housing bitcoin-related projects that does not have to do with secrecy (after all, these foundations are not custodians of any banking information whatsoever).Furthermore, domiciling outside the US most definitely does NOT relieve one of complying with US securities laws if what you’re doing is a securities offering in the US. Most well-run bitcoin projects are hopefully organized with this in mind, and either take advantage of good ol’ Rule 506 for early backers, and avoid creating a fact pattern that looks like a securities offering for later work.

      1. JLM

        .You sort of prove my point, don’t you? A verein is used by “associations” as it can segregate its profits and conduct business as if it were not a consolidated P & L thereby allowing different partnership arrangements including compensation.It also insulates the separate operating units from liabilities of other units.In this manner a merger of professionals allows the separate associations to domicile themselves in the most favorable jurisdictions while exchanging some formal cost between the units.A skeptic would say they are sending the cost of referrals, as an example, to the highest taxing jurisdiction (thereby creating the biggest possible tax savings) while allowing profits to accrete in the lowest tax rate jurisdictions — no different than Dell running its profits through Ireland while doing business all throughout Europe.To step back a little further, instead of doing business with a deep pocketed balance sheet, a client is getting only the local associate of the verein — a bit of branding legerdemain, no?As to issuing securities in the US, aren’t we being a little naive? These are not US registered securities when issued from such places. I doubt they are relying on any American registration. If they were, why are they in Zug to start with? Clearly, Freddie indicates that to be the case in his blog post.The Swiss sent private wealth managers to the US for years and years without any American bank charters.If they were complying with US securities laws, they would not need to be in Zug.JLMwww.themusingsofthebigredca…

        1. ZekeV

          I thought your point was that crypto people select Swiss foundations for privacy assurances and to avoid US securities regulation. My response is that (a) there may be other compelling reasons to go Swiss (yes, taxes may be one of them), (b) the foundations do not actually hold any secret customer info in most cases, and (c) well-run crypto businesses understand that US securities laws are a thing and either comply with a simple exemption when pre-selling tokens, OR more likely they are careful not to issue any securities at all.As an aside, yes there are plenty of “ICO” efforts that are illegal securities offerings not just in the US but also in the EU. But they will fail anyway and not b/c of regulation but b/c they exhibit other more fundamental technical flaws. The regulatory response in those cases is probably just going to be an ex-post mopping up affair, given the time and expense of making these cases / under-resourcing of the relevant cops.

          1. JLM

            .Regulation and enforcement is not a spectator sport.When an issuer does something illegal, it is incumbent upon enforcement to intervene, seize assets, smite the evil doers, and bring equilibrium to the marketplace.Financial failure is not an enforcement action.One of the things that troubles me about places like Zug is their lack of cooperation when someone does something which is illegal, they know it is illegal, and they do nothing to assist in bringing the transgressor to justice.Perfect example was Marc Rich who was violating US law and international sanctions regimes. His Glencore was HQed in Zug.The entire cryptocurrency ecosystem has the dark net, Silk Road legacy to overcome.JLMwww.themusingsofthebigredca…

          2. ZekeV

            Yes I agree with you in principle. I’m talking about prediction, not prescription.What I’ve observed is that very few people are selected for enforcement actions by the SEC, who (due perhaps to their vast under-resourcing) tend to make examples of a few random cases that they happen to learn about in the papers. There are not enough g-men in the world to handle the sea of fraud and illegality even with conventional securities scams.

  11. PhilipSugar

    Email me. Delaware has always had the best laws for banking and incorporation.

    1. JLM

      .The Delaware corporation law is very good for PUBLIC companies as it streamlines many shareholder and corporate governance issues which are, generally, for the benefit of the issuer.Still, there are certain elements of Delaware law such as Sec 220 Records Inspection by a Shareholder which are excellent.Delaware law would require substantial revelations by private companies — something which does not typically trouble public companies.JLMwww.themusingsofthebigredca…

    2. LE

      Small wonder.The basic idea of jurisdictional competition is countries, cities, and regions can compete economically with each other by adopting more favorable laws and social norms.Delaware is a good example of this. Credit card companies, corporate formation and courts. Other than Dupont is there anything else being done there? And of course the lack of sales tax.Other states are trying to do a similar thing with marijuana laws.

      1. PhilipSugar

        Courts are quick and fair.

    3. pointsnfigures

      There is no other answer. Always Delaware C Corp. That state just passed some good crypto legislation

      1. PhilipSugar

        I have had every single legislator from DE including Joe Biden on election day in my office or speaking with me. Small Sate. Friendly to business state.

        1. pointsnfigures

          http://www.tax-rates.org/De… Not so friendly when it comes to taxes though…..but no sales tax and low property taxes. Unlike my state of IL where all government ignores you and all taxes are extremely high (property, sales, income, sewer, water, etc etc etc)

      2. PhilipSugar

        Had lunch with Senator Coons today.

      1. Mark Essel

        Sounds like a planned obsolescence corp. Once we get big enough, we’re done for 🙂

    4. Emiliano Velazquez

      Problem in the US is the sec taking crypto ICO’s as unregulated emissions of securities.

  12. JLM

    .Zug is not a new development in the business of domiciling sketchy financial affairs.It was the headquarters for Marc Rich’s empire. You will know that name as the guy who was charged with the largest tax evasion fraud case in the history of the US — prosecuted by Rudy Guiliani.Rich fled to Zug when he was about to be indicted and never left until pardoned by Pres Wm J Clinton on his last day in office. Rich’s former wife, Denise, was a huge Clinton supporter — contributor to his campaigns, contributor to HRC’s Senate campaign, and — wait for it — contributor to the Clinton Foundation.It was rumored that she even warmed WJC’s bed a night or two. Trashy gossip, indeed.In any event, the Swiss looked the other way whilst Rich built a fortune on trading with prohibited countries, firms, and in forbidden commodities (oil).Selling Iranian oil by disguising its country of origin during the Iranian-US hostage crisis. Marc Rich had a fabulous relationship with the Ayatollah, but ironically provided substantial and useful information to the Israeli Mossad on Iran.Rich also traded with Cuba, Angola (when they were a pariah Marxist country), the Sandanistas, South Africa (during the apartheid days), Iran, Chile (Pinochet), Romania (Ceaușescu), Libya (Kaddafi) and other rogue regimes.To his credit, Rich never made any bones about his illegal trades. The Swiss never responded to American requests for information about these trades or extradition.Zug has a very checkered history.JLMwww.themusingsofthebigredca…

    1. LE

      Switzerland which spends a paltry .7% of GDP on defense vs. the US at 3.3%. Another example of a country benefiting from the taxes we pay here as well as the healthcare research which we fund with high drug prices to the benefit of other countries.

      1. JLM

        .The Swiss have never really been part of Europe in their mountain redoubt and are not a member of NATO.They require universal military service and where the US “allows” a weapon to a citizen, the Swiss “require” their military age citizens to own a weapon and give them one.In WWII, Hitler was asked why he didn’t invade Switzerland and is said to have replied: “They are more German than the Germans.”JLMwww.themusingsofthebigredca…

        1. LE

          Do you think that is really why though? [1][1] Maybe it was because they were already ‘bent over and greased up’.

          1. JLM

            .The German military was very smart about how they fought.Switzerland would have been a nightmare from a tactical perspective. Two men, decent marksmen, could hold off a battalion given the right bit of terrain to defend — mountain passes, mountain roads, etc.The Allies spent two long winters fighting their way north in Italy through the mountains and there were not the Alps.After the Anzio landing fiasco, the Allies never wanted to consider another landing further up the peninsula of Italy. In retrospect, that is what they should have done and trapped the Germans after the Italians surrendered.Plus, the Swiss gave them support and succor — financially, geographically, access through their country to Italy. The Krauts had little to gain and a lot to lose.JLMwww.themusingsofthebigredca…

  13. Salt Shaker

    The origin of the word Zug is rooted in fishing vocabulary. Seems apropos. “For your fishing expedition, pls come to Zug.” Bait and lures not provided.

  14. reggiedog

    Zug: a pristine place for dirty people. (with referential apologies to Miami and Monte Carlo)

  15. LE

    It is a new way to architect a business.You extract profits with your currency, not your business model. They are so many institutions, laws, even governments that look at that playbook and freak out. Why? Because at the core it’s gambling and in competition with existing legalized gambling. And I don’t mean casinos, the race track or sports betting either. People are buying crypto because they see it as way to make money. From a greater fool to use the derogatory. I wouldn’t say that this is much different from other forms of both investing and legalized gambling. That might not be what many people think it really is or most importantly could be but there is no question that is why money is flowing in.

    1. Emiliano Velazquez

      It starts in stages, currently people will see as a way to get money quickly, or a better way to store value. But as time passes, you’ll start so see the applications and why it works better on many different industries. It just takes time of developers coding.

  16. Richard

    Single Payer for healthcare is far more dangerous than single payer for currency.

  17. Arturo D. Gentili

    adapt and evolve or be left behind …ask Kodak to name one…..

  18. pointsnfigures

    Agree completely. Look at my state of Illinois. Businesses are rapidly moving to Indiana and other border states because of taxes and regulations. The stream of people is now going to turn into a raging river now that the new tax increases are in place. Nashville TN gets 100 new residents from high tax states per day.To his credit Gov Bruce Rauner has been proactive on having lite/no bitcoin regs in IL. The General Assembly and city of Chicago won’t because they don’t understand the stakes.It’s the future of the net. She who controls the gold wins.

  19. JamesHRH

    I realize this will be annoying to many, but my first thought is this:- this is Trump’s view of the world (substitute country for city, good bye NATO)- this is Putin’s PR narrative to the world (substitute whatever you think is Putin’s actual desire)- this is Richard Florida’s view of the world (substitute city back in for country)As a first reaction, if the world is made smaller and faster by the internet, then a return to a more feudal global model seems a likely outcome.If you add in that most demographers foresee the world becoming a series of corridors (Boston to Philly in the NE / Seattle to Portland in the NW / SoCal / Autin to Houston / KW to Toronto or the 401 general), it makes sense that a regional feudal system is where we will be in 100 years, with more fluid national interests.And agreeing with Richard Romer is typically a safe bet.

    1. JLM

      .To the extent there is a re-emergence of a feudal system, it will be driven by the demarcation lines which control policy — in the US, the Feds and the States. Not counties and not municipalities.Take a look at California v Texas. California is a beautiful state run with a socialist governing philosophy. Texas is slowly picking its pocket based on taxes, cost of living, cost of governance, legal environment, regulation, and taxes. No income tax in Texas.Look at Illinois v Florida — one is a banana republic with no bananas and the other has no income tax with lots better weather.California and Illinois are on unsustainable glide paths — just like Puerto Rico.It is already happening. The US Congress cannot get a sanctuary city bill through the House and Senate — meanwhile, the Texas Legislature has and it was signed by the Governor.You misread Trump if you think he is anti-NATO. He is pissed off about the EU and other NATO members not paying their fair share of the costs both in financial terms, but also boots on the ground.It is silly that the US is required to underwrite the safety of Europe, particularly versus Russia.First, the EU (EU-28 plus Norway, Switzerland, Iceland) is huge. Their combined GDP (PPP basis) is bigger than the USA. They have no leadership and they have no arsenal.Second, Russia is tiny. Absent nuclear weapons, Russia is the size of Spain — economy wise. Russia generates half of its income from energy. That is why it is strategic to keep energy prices as low as possible and lower. Break the Russians.Third, nobody but desperate henchpersons have any regard for the Russians. Theirs is not an attractive philosophy.While CNN doesn’t like Pres Trump, he’s doing fine in places like Saudi Arabia, Israel, and Poland. His brand of America First nationalism is going to produce great results.This week, the President of the US brought up steel dumping at the G-20 in the presence of China, South Korea, and Japan. When did that happen last? Never.If Pres Trump can get the economy humming again, the US will be a huge power in the world at a time they have no real rival. Maybe China? But China has that Communism thing going on. Such a yesterday idea.JLMwww.themusingsofthebigredca…

  20. awaldstein

    Fred–Please elaborate on this in a post.I agree 100% yet this idea is so disruptive that I need to hear it again.”The crypto playbook is a disruptive one. It is not a new way to raise money. It is a new way to architect a business. The profit motive is flipped upside down. You extract profits with your currency, not your business model.

  21. Kevin Werbach

    We should distinguish creating a local cluster for crypto companies, as Zug has, from the question of how to regulate. Does Zug have significantly more favorable laws than other Swiss cantons? I doubt it. Just as Silicon Valley doesn’t have better laws than Bakersfield (and much higher costs!), but the startups all locate there. If you go to the Zug Crypto Valley website, they talk about all those other aspects of a favorable business climate and a network of similar companies in the area.It’s true that a bad law can drive companies away. The New York Bitlicense seems to have done so, partly in its over-broad implications and partly because they dropped the ball on implementation. But it’s hard to believe that “no law” will be the winning strategy. Take ICOs, for example. When people lose money on the ones that turn out to be scams, “caveat emptor” won’t be a satisfying response. What happens when pension funds start putting money into them? I know this wasn’t the point of Fred’s post, but a race to the bottom is a dangerous scenario.Right now, so much of the issue for crypto companies is uncertainty. At some point, there will be a need for a predictable baseline legal environment. Delaware is a great example. Companies don’t just pick the state of incorporation with the lowest taxes or strongest protection against shareholders; they incorporate in Delaware because it has a good comprehensive legal regime, and an expert court system and bar to enforce it. It’s the result of healthy jurisdictional competition, not a pure race to the bottom.In 1997, I was part of the team that created the White House “Framework for Global Electronic Commerce,” which put an important stake in the ground to promote the growth of the internet. It sent a strong message to other governments that the US wasn’t going to engage in knee-jerk regulation or prohibition of new services. But it also made clear that we were engaged in working through the new challenges, many of which would require government action. There hasn’t been anything like that for crypto, at least not from countries powerful enough to shift the global agenda. What the British FCA is doing (and the US CFTC seems to be creating) with regulatory sandboxes is a good transitional step, but there needs to be more done.

  22. Robert Morris

    Estonia seems to be taking the lead. Not Switzerland. E residency, 0% tax rate, register from anywhere and gain access to Euro markets. Brilliant in my mind. https://buy.msp.cx/?r=49C

  23. Susan Rubinsky

    “You extract profits with your currency, not your business model.”Doesn’t the U.S. Federal Reserve and the creditors behind the curtain do precisely this (earn money off taxpayer money)? This is why the institutions (eg., U.S. big banks and creditors) don’t want the crypto model because they then loose control over the system which is insanely profitable for those at the top. The only way they’d support the crypto model is if they controlled it.

  24. Jonathan Trenn

    There’s a Blockchain Caucus in Congress. I’m wondering if they’re aware of the issues here.https://polis.house.gov/new

  25. Emiliano Velazquez

    Hi Fred, with my brother we’re working on a project for dispute resolution (decentralized Court) to be used in smart contracts. What’s the best way to reach you if you’re interested? It’s a critical part of being able to properly device smart contracts that have subjectivity attached.

  26. Søren Fog

    The article links to an unofficial website of Crypto Valley. The official one is http://cryptovally.swiss/I would like to point out that this is not a Zug limited scope, it started here for various obvious reasons, but our vision is for the entire country.

  27. JLM

    .The victors write the history and the sins of the father are not the sins of the son — nonetheless an alternative view of history does not refute the facts. It may only argue the conclusions.In the case of the Swiss, their ultimate settlement speaks volumes. The Swiss Germans were the tools of the Nazis.Had the world not been so bone weary and broke after the war, had the Americans not had to go finish off the Japs, had Roosevelt not died — Morgenthau’s Treasury Dept and John Foster Dulles’ OSS would have brought the Swiss to justice for their “neutral” actions during the war.The Swiss should have been given their day at Nuremberg as co-conspirators and funders of the Nazis.JLMwww.themusingsofthebigredca…

  28. JLM

    .Godwin’s Law is exactly why I did not refer to the Nazis by the name of their leader. The book I cited has a title: “Hitler’s Banker.”JLMwww.themusingsofthebigredca…