Switzerland has long been on the cutting edge of banking, finance and the use of alternative currencies. It is not surprising then that cryptocurrencies like bitcoin are already widely available to the general public.
What is bitcoin?
Bitcoin is a cryptocurrency, which means that it only exists as code on computers and not in physical cash form. It is based on blockchain technology, which automatically generates records of electronic transactions in databanks.
People who make computer systems available for the decentralized storage of transaction data and/or service the blockchain system are paid for their services with bitcoins which are generated in relation to the amount of computing power made available to the bitcoin network. This process is called “bitcoin mining”.
Because the number of new bitcoins issued is limited by the effort and computing power invested in the network, the supply of bitcoins is limited. The fact that bitcoin can still be mined, bought and sold completely anonymously makes it a viable alternative to cash and puts it at an advantage over electronic payment instruments like bank transfers, credit cards and wire transfers which generate data about your financial transactions.
Bitcoins are held in a digital application called a “bitcoin wallet”. This application allows you to transfer bitcoins to other bitcoin wallets directly over the Internet, with no need for a bank account, credit card or other financial intermediary.
Where can you use bitcoin?
Currently, the number of merchants which accept bitcoin worldwide is approximately 100,000. That means bitcoin has a total acceptance similar to that of the national currencies of some small countries.
However, only around 100 Swiss merchants – mostly small businesses – currently accept bitcoin as payment for goods and services. That means bitcoin is even less widely accepted than many regional Swiss community currencies like the Farinet (approximately 130 participating merchants) and WIR francs (approximately 30,000 participating merchants).
Because of its low level of acceptance, it is fair to say that bitcoin is not a viable alternative to the Swiss franc with regards to engaging in trade. However, because bitcoin is backed by an international community, it can be used to facilitate the transfer of wealth across borders.
Where can you buy bitcoin?
While exchanging bitcoin for goods and services might be a challenge, buying bitcoin in Switzerland is much easier than buying bitcoin in many other countries.
You can purchase 20 – 500 Swiss francs worth of bitcoins at a time at any SBB / CFF railway station which has an automated ticket vending machine. You can pay for your bitcoin purchases in cash or using a debit card.
Bitcoin purchases at SBB ticket vending machines are transacted by financial intermediary Sweepay which is headquartered in Zug. Sweepay, in turn, uses Malta-based broker The Rock Trading as its bitcoin trading partner.
The downside of purchasing bitcoin through the SBB / CFF is that you pay a 6% commission on the exchange, plus the currency exchange spread. You also lose the benefit of anonymity because your mobile phone number is required in order to complete the purchase.
Bitcoin Suisse AG, a Swiss broker which lets you buy and sell bitcoin, is an alternative for bitcoin purchases in Switzerland. The commission charged by ATMs operated by Bitcoin Suisse AG is lower than the SBB’s, at 5%. Bity SA, another Swiss bitcoin broker, operates ATMs in Geneva, Lausanne, Montreux, Neuchâtel and Zurich. Its commissions vary between ATMs, ranging from 3% to 5%.
Both Bitcoin Suisse and Bity also let you buy and sell bitcoin via their online portals. In the case of Bitcoin Suisse, you pay a 3.6% commission when you purchase bitcoin through the online retail platform. Bitcoin Suisse specializes in large-scale transactions and customizes fees for large purchases. Bitcoin fees (incentives to bitcoin miners to complete transactions) must be covered by the buyer in addition to the brokerage fee.
The Internet is full of foreign online bitcoin brokers and marketplaces, some of which charge relatively low commissions. Some of these (like Coinbase) are registered and regulated in a foreign country. However, many online bitcoin brokers are not regulated by any financial supervisor and buying bitcoin through these brokers is only recommended for experienced bitcoin users with a fair risk capacity. When calculating the cost of buying bitcoin through foreign brokers, make sure to account for relevant bank transfer or credit card fees and currency exchange costs (CHF to USD, for example) in addition to commissions charged by brokers. In some cases, buying bitcoin from a Swiss broker with Swiss francs can work out chaper, in spite of higher commissions.
An alternative to purchasing bitcoin through a broker is to connect with individuals who are selling bitcoin and buy it directly from them. Online platforms like Localbitcoins.com make it easy to connect with sellers and buyers near you. Buying bitcoin this way can be a lot more affordable – but there is a risk of being taken for a ride by con artists so direct purchases are only recommended for experienced bitcoin users.
Bitcoin as an investment
Up until now, bitcoin has primarily served as an speculative instrument, with ongoing investment in bitcoin fueling price hikes and price hikes fueling demand. While bitcoins could be purchased for a fraction of a centime when they first appeared in 2009, bitcoins could be sold for well over 6000 Swiss francs per bitcoin in 2017 – less than 10 years later.
Whether or not the price of bitcoins will continue to increase is impossible to predict. Factors like community support, legislation, competition from other cryptocurrencies, interest on the part of speculators, supply levels, acceptance by merchants, presence or absence of technical glitches and liquidity when converting bitcoin into fiat currencies all play a role.
Due to the unpredictable nature of bitcoin rates, anyone considering investing in the cryptocurrency should have a fair risk tolerance and risk capacity.