Zug has become a leader in cryptocurrency adoption, allowing residents to pay for municipal services with Bitcoin and Ethereum since 2016. In 2021, the city expanded this to tax payments, with the limit raised from 100,000 to 1.5 million francs by 2023. Tax payments in cryptocurrencies have grown significantly, although daily transactions remain limited due to rising costs. Zug maintains a focus on cryptocurrency as a payment method rather than a speculative asset, prioritizing financial security.
Zug: A Pioneer in Cryptocurrency Adoption
In a remarkable move that captured global headlines, Zug emerged as a trailblazer in cryptocurrency acceptance. Back in May 2016, this Swiss city made a groundbreaking announcement, becoming the first municipality worldwide to accept cryptocurrencies as a standard form of payment. As of July 1, 2016, residents have had the opportunity to pay for official services, such as residency confirmations, using Bitcoin and Ethereum.
Growing Acceptance and Record Payments
Despite the initial buzz, it took five years for the canton of Zug, which proudly calls itself Crypto Valley, to expand this payment method. Starting February 2021, both individuals and businesses are allowed to pay their municipal, cantonal, and federal taxes with cryptocurrencies. The initial cap for payments was set at 100,000 Swiss francs, but this limit soared to 1.5 million francs in 2023.
The adaptation to this new payment method has been gradual. In 2021, approximately 60 individuals and companies paid about 250,000 francs in taxes using cryptocurrencies. A year later, while the number of transactions remained similar, the amount collected surged to at least 1.35 million francs. Following the increased limit in 2023, over 100 users have already paid a staggering 6.51 million francs in taxes through cryptocurrencies.
As we approach the end of 2023, the canton has recorded around 3.24 million francs in tax payments by September. Zug’s finance director, Heinz Tännler, anticipates that the final total could reach up to 10 million francs in 2024, especially since most tax payments typically occur in the last quarter of the year. The conclusive figures will be available in the first quarter of 2025.
Nina Attinger, Deputy Head of Communications and Media Relations at Bitcoin Suisse AG, notes that the increasing willingness to use cryptocurrencies for tax payments reflects their growing acceptance in Crypto Valley Zug. Furthermore, for cryptocurrency holders hesitant to trade, this payment option allows them to utilize Bitcoin without being affected by market fluctuations.
Currently, about one-third of tax payments are made in Bitcoin, with another third in Ethereum. However, the canton does not differentiate between individual and corporate payers in its statistics. Despite the rise in cryptocurrency tax payments, utilizing digital currencies for state services has not gained traction. Zug city clerk Martin Würmli mentions that small payment options have not seen much interest over the years.
Similarly, Zermatt, which has embraced cryptocurrency payments since 2020, has faced challenges in this area. Mayor Romy Biner-Hauser expresses disappointment, noting that despite media inquiries, no Bitcoin payments have been received. Meanwhile, Lugano only introduced this payment option at the beginning of 2024, and there has been no update on its success.
Würmli attributes the lack of interest to rising transaction costs associated with cryptocurrencies, a sentiment echoed by Attinger. The high costs have made it difficult for cryptocurrencies to be used effectively in everyday transactions at stores and service providers.
Nonetheless, the city of Zug remains committed to maintaining this payment option. Würmli asserts that the overall impact has been positive, emphasizing that the media attention surrounding the launch has significantly raised the profile of Crypto Valley Zug. Zermatt’s mayor shares a similar view, stating that the initiative aligns with contemporary trends and offers locals an additional payment avenue without incurring disadvantages.
When it comes to speculation, the city of Zug has not engaged in trading cryptocurrencies. For instance, a residency confirmation issued in Zug on July 1, 2016, cost just 20 francs or 0.032 Bitcoin, which would amount to nearly 3,000 francs today if the city had retained those Bitcoins. However, Würmli clarifies that the city’s balance sheet reflects only Swiss francs, not cryptocurrencies, as they have a contract with Bitcoin Suisse AG for the conversion of due amounts into francs.
According to Tännler, the canton of Zug views Bitcoin strictly as a means of payment rather than a speculative asset. He emphasizes that ensuring financial security outweighs any potential short-term speculative gains, which could easily turn into losses.