“FinTech Made in Switzerland”: Interview Luzius Meisser, Bitcoin Association Switzerland

I’m Luzius Meisser I studied computer science at ETH Zurich then co-founded a company, Wuala, a secure online storage, which we sold to LaCie after two years. Soon after, in 2011,
I got interested in Bitcoin. I’m also involved with a few Swiss startups where I helped with seed funding. Recently, I founded an own new company. It is named Meisser Economics, and is about building economic models. I’m a co-founder of
Bitcoin Association Switzerland, and served as its president for a while. Bitcoin solves an old problem known as “distributed consensus”
in comptuer science How can one ensure
that everyone world-wide sees the same reality,
the same truth, without possibility of manipulation. The blockchain, the underlying technology, is a property registry. In the case of Bitcoin,
that registry is used to record who has how much
of that imaginary currency. That in itself is already very valuable, but only the beginning. One step further are so-called self-executing contracts that are specified in programming code and automatically enforced within their system. A simple example is a bet. I could bet with you on who is going to win the next football championship. We both would deposit
100 Swiss Francs into – for example –
the Ethereum system and that self-executing contract would then later go
to the FIFA website to see who won
and pay 200 Swiss Francs to the one of us who won. Normally, we would need to trust each other to perform such a bet. Or we would need a betting ageny
that we both trust. But if you do it as
self-executing contract, no intermediary is needed and we can bet directly
between the two of us even if we have never
seen each other before. Blockchain is finance and technology so it is fintech
by definition. However, it is somewhat separated
from the fintech scene. And I often asked myself why? One possible explanation
is it being very ideological. Many Bitcoiners or proponents of
other cryptocurrencies don’t just want to build a business to earn money or to
implement a business plan but to revolutionize the financial system. Or they want to have a currency that is
independent of central banks. They often have a very libertarian
ideological background. And that bites itself a little with the classic startup process where
one seeks venture capital and so on. On top of that, you can often do your own
funding with cryptocurrencies, maybe a crowd sale
of your cryptocurrency like Ethereum did. They raised more than 20 million by
selling their own currency. Thereafter, it has grown in value and the Ether has a market cap
of over a billion. That’s money they can use (at least the part
they did not initially sell) to finance further development. So they do not actually need
any venture capital. Bitcoin simply exists. It does not require a
functioning state for its existence. Contrary to that are
classic fintech startups like Contovista. They solve a concrete problem in a concrete place that in this case is first deployed in Switzerland and then maybe in
Germany and Austria. This is the conventional
approach of incrementally conquering the world. But Bitcoin was international
from its inception. It creates its own world,
its own reality. And that’s also its main problem, namely the connection
to the residual reality. These bridges are always
a little cumbersome When I pay with Bitcoin – disregarding pure Bitcoin transactions – I need either a shop
that accepts Bitcoin or I need to change it, similarily to when I want to buy Bitcoins. And there I see the biggest
opportunity for a jurisdiction. In the case of Swiss finance,
one needs to ask oneself: how can we seize this opportunity. And one… … one big demand that is emerging is that for specialists in finance, law, and IT, but also for locations that are stable and neutral. That legally allows to
create that link between the reality on the blockchain
and the residual reality. Such that I can found a company with shares on a blockchain, making them instantly
tradable world-wide, independently of the
existing financial system. Today, that is
not possible in Switzerland because the Swiss law says you can only transfer shares
with a written contract. So you either need to sign manually or it must be listed
on a stock exchange. That’s why you can trade Swiss stocks
without signing every transaction. But that presumes a traditional
financial infrastructure which fundamentally differs
from the blockchain. Fortunately, not much is needed
to improve that. In this concrete case,
one could get much further by adjusting a single article
in our civil code to say that the bylaws
of a company can freely specify how its shares
can be transferred, for example allowing the
simple electronic signature as used on the blockchain. The question is always: How can the existing legal abstractions
be meaningfully linked to their counterparts
on the blockchain. Today, that link is weak. Consider “digital autonomous
organizations” (DAO), one of which got
150 millions of funding, out of which a hacker managed to steal a third part of which was taken away again
in an adventurous way. But this poses simple questions like: What is this after all? Is it… Do the DAO investors form an
unregistered partnership. Or is it simply co-ownership? In the context of liability
this can be very important. It would be desirable to clarify this so one can say: “we form
a corporation on the blockchain that follows the
legally necessary structure, by for example having a board
that is mapped to the blockchain, and other well-defined requirements.” And if in Switzerland this was possible, we could become the preferred hub for digital autonomous organizations. It’s remarkable how
in the pioneer stage of a technology a small lead can make
a huge difference. I like the example of Hollywood. Harvard professor Larry Lessig claims that Hollywood is in Hollywood because the Californian courts enforced Thomas Edison’s patents
less eagerly than others. As the same can happen
when the blockchain gets as big as many
predict it could, making it essential to be
at the forefront as a tech hub. A healthy economic hub
is like a forest. Compulsively propping up old trees
is not sustainable. The sustainable method
is to say: “Ok, sometimes and old tree falls
because it got old and rotten. But in exchange, many
young trees are growing back.” The biggest mistake is to prevent young trees from growing. For example, when
too much regulation pushes fixed costs higher
than startups can bear. There are two types of equilibria. A static equilibrium is when one tries to keep
everything in place, tying the big old trees
to each other such that they can prevent
each other from falling. But that creates a systemic risk, because in the end
they will all fall together. It’s much smarter to have
a dynamic equilibrium that is
anti-fragile, where things
are allowed to happen and trees fall all the time. And news ones
constantly replace them. And that’s also how the
banking system should be. One should say: “We do not care when a big bank falls
every now and then, as long as new
small banks are blossoming and the individuals
diversify their risks.” When everyone knows
that banks can fail then they won’t put all money
into one place any more, distributing it instead. That’s a different way of handling risk, namely through redundancy
instead through absolute 100% certainty
that does not actually exist. Credit Suisse already lost 90% of its value according to the stock market. So… if the remaining 10% disappears as well, is that really a tragedy? The employees
do not simply disappear. The business units
do not simply disappear. They are sold, or split off,
or there’s a buy-out, or the employees
form a new startup. If someone is capable and has useful knowledge, he can always make use
of that in some way, making the economy grow. I don’t hink one should cling too much
to a single company, because the economy is dynamic. You don’t get very far
with static rules. As soon as one tries
to preseve the status quo, for example by repeatedly
bailing out the banks, another example is
England when steam engines got obsoleted
by electrification, trade unions insisted that
stokers cannot be fired. So there had to be a coal shoveler
in every electric train. And that’s completely pointless. It can help an individual
in the short run. It isn’t a very satisfying job to
shovel coal on an electric train. There’s nothing to do. He temporarily continues to earn money, but that does not help
the economy at large. One needs courage
for creative destruction. A typical regulator
gets criticized whenever something bad happens. So they have a strong incentive
to eliminate every risk. At the same time,
nothing happens at all, when the regulator
destroys an opportunity. So when Finma
crushes a chance for a billion dollar company
to emerge in Switzerland, no one notices, because the company
never emerged. And no one criticizes Finma. But if billions get lost
because they failed to detect money laundering or
a theft of client funds, then everyone says Finma
should have prevented that. So Finma is naturally risk-averse,
in their own interest. It’s the same for all financial
regulators internationally. They always focus on eliminating risk. So if we succeed at being
a little less risk-averse than everyone else. Then, we have an advantage
at seizing that opportunity. And that’s what’s nice about it. We do not need
to be very risk-taking. It suffices to be a less risk-averse
than everyone else to become the preferred hub
for blockchain startups. In Switzerland in particular,
with its decentralized system, there often is no single entity
that can decide on its own. Thanks to being a federation we have 26 chances that a
canton gets it right, and regulates correctly. Whereas other countries,
like France, only have one chance. If Paris regulates stupidly then they destroy that chance
for all of France. Whereas in Switzerland
we have cantons like Zug that pragmatically clarified
relevant questions early on, legally and taxation-wise. And that… welcome blockchain startups
with open arms. Other cantons
act more slowly… For example Zurich decided to
wait and see. I don’t believe that the Swiss are more
intelligent than others. But we have a system, that thanks to its decentralized nature, increases the likelihood of
someone somewhere getting it right. Of course, some things
are still regulated nationally, like VAT. But Switzerland also has
an advantage here. The Swiss federal tax office
recognized Bitcoin as money already quite early, while other countries had to be led to that insight
by the European Court of Justice. Why is that? That is a symptom of Swiss laws being
formulated in general terms, providing freedom for
reasonable interpretation. Countries such as Germany
have much more detailed laws, denying government agencies
the freedom to reasonably apply these
laws to new circumstances, necessitating a change of the law even in cases where it is clear
how it was meant. The Bitcoin ecosystem got more boring over time. What happened is that a group of very
conservative developers took power. They are very hesitant to… open the system to more transactions. There’s a well-known debate about the block size. This is about a parameter that says how many transactions
can happen per day. Currently, it is 1 megabyte
per 10 minutes. But the system could easily handle
10 megabyte per 10 minutes. I spoke with various
developers about this and all say that this should
not be a big problem. But they are often afraid that
a one-time increase will make people ask
for more and more. Which does not work as it
cannot get arbitrarily high. Due to this fear, they already refuse
the first increase. So it is a
purely political fear that prevents ten times as many users
from benefitting from the Bitcoin system. Instead, they prefer to wait until
a better solution is ready some day, without knowing exactly
when that will be the case. And… that alienated me a little from Bitcoin, and brought me closer
to the Ethereum system, that doesn’t have such
a restrictive limitation. The Ethereum system allows for much more and
faster transactions. It does not care about
the increased data volume. So instead of 30 Gigabyte per year, there might be 300 Gigabyte, which can still be stored without problem. Bitcoin Association Switzerland
can be seen as a fan club. There are frequent meetups and talks. We provide a face for the public. We get inquiries from journalists
and from interested firms, who want to know more about Bitcoin. Or… from organizations that
want us to present Bitcoin to their members or employees. I myself presented Bitcoin
about four or five times to banks, that wanted to know
what this is about. And UBS has Level 39 in London, which is a blockchain lab
for their own research, to ensure blockchain know-how, creating things like their Smart Bond. The… challanging part is to find the courage to
actually use that technology. Innovation does not start with knowing a technology
but with bringing it to the market. There are many banks that are in global competition
with each other. They do not only defend themselves
against new technologies, which they might not
see as a threat, but also against competitors. So many banks see the blockchain
also as an opportunity. As a bank, you need to think
about what your competence is. Some businesses, for
example wealth management, are always needed. Wealth management is neded
regardless of whether that wealth is on the blockchain
or in a bank account. Or… for example… in investment banking, there will always be a need for people
that can evaluate a firm, and that can decide whether to buy
or not to buy at what price. Many of these things
don’t simply disappear. There are a few… There are few things, for example stock exchanges, that
could be organized differently. But if a bank adapts fast enough, there is no fundamental threat. When banks experiment with
blockchain technology, they often want
control over the system. They say, for example, we need the ability
to freeze accounts. And that makes a mockery
of the whole idea. The secret of the blockchain
is its decentralization with no single entity
being in control. Of course, it takes courage
to build such a system and to want it to exist, because there is always
the risk of it being abused. It’s like freedom of speech. You can abuse freedom of speech to say something stupid. But it also provides you with the right
to say what you want, without going to prison. Analogously, the blockchain can provide citizens with
strong property rights. Here in Switzerland we
already enjoy the luxury of having strong property rights, but I just read about Turkey, where Erdogan dismissed 3000 judges and then confiscated all
their private property. He could not have done that
with blockchain-based property, because there is no central control. In a world
in which crises happen and in which there are uncertainties, is a blockchain an instrument of power
in the hand of the citizen. While it must be used self-responsibly, it helps shifting the balance of
power back towards the citizen, away from the state and
from large firms such as banks. If you are the runner up, you will miss most of the created value. The Silicon Valley
benefits enormously from having Google,
and Facebook, and Amazon. There are dozens of Internet
companies that siphon many billions every year
into that region through world-wide ad revenue,
royalties, and other income streams. That’s why being such a tech hub
is a very attractive proposition. Berlin currently is a
hot spot for startups. But generally the EU
seems rather slow, maybe due to regulation, or maybe due to a
more skeptical attitude. For example, a very skeptical attitude towards cash,
which is related to Bitcoin. In Italy and France, cash payments
above 1000€ have been made illegal, because they are so afraid if that. Also quite bad are the US, as they have an incredibly densely
regulated financial sector. The US is often seen
as the land of the free, but that does not apply
at all to the financial sector. Depending on the state,
it differs a little. So… it took quite a while until
the US had its first Bitcoin exchange. A positive scenario would be Switzerland becoming
the preferred jurisdiction for creating
digital autonomous organizations. So that Switzerland
can be the preferred place for blockchain-backed
contracts and organizations, providing a legal anchor. That anchor is important
for self-executing contracts because even the best technology does not enable you to
write perfect contracts. There are always
unforeseen eventualities that can cause trouble. And to handle that such contracts need
interfaces for arbiters, that can intervene
in case of a dispute and maybe even can
reassign assets in case of a theft based
on an obvious exploit. So one will need ways to resolve
disputes in a legally potent way. This would allow to hold
the arbiters accountable. And for that, you need a jurisdiction that allows for that connection, and where you can say, we are bound to
– for example – Swiss law. This has interesting consequences. In a globalized economy,
the winner often takes it all. So that one place can
dominate a sector. For example, many bonds are issued
under British law, Many funds are domiciled in Luxembourg
or on the Cayman Islands. That can happen out of habit,
but there often are real advantages. And I find it a pity that not
more funds are domiciled in Switzerland. Even Swiss banks often use
other jurisdictions, and that hints at
something being wrong. But maybe we can do better
in another area, being the first and best choice
for blockchain startups. And once that’s established, it will be hard to push
us from the throne. And that’s the positive scenario, that we can leverage the
small lead we currently have and make sure we become the
prime hub for that sector. One thing I observe, that there is plenty of talk
about the blockchain, and its huge potential,
that waits to be realized. And I myself also talk a lot
about its opportunities… But there are relatively few who
actually go there and say: “I do it.” “I emit a Swiss Franc coin on the blockchain.” or “I create a digital
autonomous organization, that does whatever.” Partially, this is
due to a lack of tools.
As a software developer one needs good tools. And they
are under development themselves. But nonetheless, I sometimes
miss the spirit of just doing it. That presumes a healthy pragmatism that involves risk-taking. Where wood is chopped
splinters must fall. Maybe unintended things happen, like the fall of MtGox, where half a billion was lost. Things like that happen
at the pioneer stage. It is a wild west. But a lot is also created,
worth much more than what is lost. Developing a vision is
relatively fast. In the early 90ies, it was said
TV goes online, shopping goes online, everything goes online. And ten years later, that
had not happened yet. And today… I think it was 2004 when
youtube was founded. So this is quite young. The same holds for Facebook. And… online shopping is now starting
to gain serious traction. Zalando, for example. It took 20 years for online shopping
to be broadly accepted for everyday items. Similarly, it is easy to have
bold visions today, and to say firms will be
founded on the blockchain, and one can instantaneously
trade any asset world-wide. But to get that far, it takes many more incremental
technological improvements. And that takes time. You cannot blame
anyone for that. It is a lot of work. The blockchain gives me more control
over what happens with what I own. I can secure everything, putting my secret codes
into a safe. And no one can take them away. That’s a scenario some politicians are afraid of. It’s like having a rifle at home, it is an instrument of power
that also can be abused. Interestingly, this is in the spirit
of the 19th century marksmen’s clubs, that were founded out of
distrust of the state. They wanted the citizen to own rifles and to
know how to use them, such that he can defend his
own freedom if ever necessary. There are similar threats today, where the state increasingly wants
to control its citizens, and to check
each and every transaction, in order to potentially block them. And that can also lead to
a citizen’s movement, that says “we do not want to
give away that freedom, we want to be in charge, with Bitcoin offering the
technical solution.” Should the blockchain succeed, it won’t be very visible
as a technology. That’s like the Internet, where in the beginning,
everyone wanted to know how it works. “What is an IP address?” “How does a data packet find
its way from here to the US?” And today, no one cares,
and everyone uses it. And the same
will happen with Bitcoin or other blockchain-based systems. The technical complexity
will be hidden, and interest in it decline. Today, when I use a credit card, I do not care,
is there an issuer? And a bank? And who does what? Most people don’t know. And still they use it.

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