Which Are the Best Locations for Blockchain Companies? — We Asked Our Well-travelled Crypto Friends
Last October marks the 10th birthday of Satoshi Nakamoto’s Bitcoin whitepaper. If we “translate” this onto the timeline of the internet, we’re roughly in the late 90s or early 2000s. By then, Silicon Valley had emerged clearly as the globally leading hub for internet and software companies. This isn’t that surprising, considering that it had already been the world’s capital for computer chip manufacturing that gave it its name. In Crypto, we’re far from seeing a single city or region dominating the industry right now and there are at least 5–7 spots that are frequently called “crypto hubs”. The (crypto) winter gave us some time to take a closer look and try to answer some questions that might be helpful for crypto entrepreneurs and investors:
- Which are the best locations to found and run a crypto company?
- How do the most important “crypto hubs” compare against each other?
- Which regions should investors and enthusiasts have on their radar?
- How will this change in the future, and will there be a “Silicon Valley of Crypto”?
Since there are roughly a gazillion articles with opinions on crypto hubs out there, we decided to go out on a limb and collect some data. We designed a short survey comparing the leading hubs along five dimensions.
- Regulatory friendliness (1=less friendly to 5=very friendly)
- Talent access (1=less attractive to 5=very attractive)
- Activity of the crypto community (1=less active to 5=very active)
- Number of startup role models (1=less attractive to 5= very attractive)
- The hubs’ future importance (1=less important to 5= more important).
Each dimension was ranked equally, and the overall ranking was determined through the average of all categories. To make the results as insightful as possible, we sent the survey only to “well travelled” individuals who have been to at least to four of the seven places, which of course limited our sample size (to around 20), so please keep in mind that the survey is by no means representative. The seven regions we decided to include in our survey are Berlin, China (as a whole), London, New York, Silicon Valley, Singapore and Zug.
The below charts show the overall results of our survey. What follows is a description of each hub along the survey results, plus additional insights we gathered from our own research.
- There is no clearly dominant region for crypto companies today, rather we see a distributed landscape
- Singapore is rated best overall, followed by Silicon Valley and Zug; China rated lowest overall
- Singapore is especially strong in activity of community and regulatory friendliness
- London is rated highest on future importance (perhaps due to being “well-rounded, as it scores well in every category); Zug is rated lowest (it seems due to lack of access to talent)
- We asked which hub is most important that we didn’t name and >50% of participants named Malta. This is likely due to its forward-thinking regulation that was recently put in place
Singapore — Favorable Rules & International Vibe
Singapore ranks highest in our survey. The city state scores particularly high on regulatory friendliness and activity of the community. Singapore’s crypto friendly environment is mainly driven by its supportive policy of zero capital gains taxes as well as initiatives by the local regulator. In fact, the Monetary Authority of Singapore (MAS) belongs to the few jurisdictions that published ICO guidelines already in November 2017 and that is known for a number of efforts to make regulation on crypto-tokens clear. A recent example is the Payment Services Bill which contributes to a better understanding for the requirements of Payment Services Providers. Singapore’s high score in the activity of its crypto community can be related to its small but very international ecosystem that attracts expats worldwide. Companies such a TenX make a strong effort in building a local presence and large crypto exchanges like Huobi further facilitate the local ecosystem. According to our poll, however, Singapore’s scores of the categories “access to talent”, “number of successful startup role models” and “future importance” are not as strong which might be related to its limited size and relevance as a tech ecosystem.
Silicon Valley — Doing What it Does Best
The second place in our survey goes to Silicon Valley. Besides its global dominance in tech, Silicon Valley is one of the most active crypto hubs in the world and home to many leading crypto companies such as Coinbase, Ripple, Kraken and DFINITY. Not surprisingly, it ranks highest in the category “number of startup role models” and “talent access”. Looking at some of the mentioned names though, it seems that many companies follow Silicon Valley’s stereotypical pattern of “growth at all costs” while compromising on decentralization. Arjun Balaji’s piece “Centralize, then Decentralize” describes this interesting trade-off. Crypto startups in The Valley also benefit from the concentration of high-profile investors, with many of the best-known crypto focused funds like A16Z crypto, Pantera Capital or Blockchain Capital being located here. However, despite its important role for Crypto today, the future importance of Silicon Valley was ranked less strong. Reasons for this could be the faster development of other hubs more dedicated to Crypto. After all, in Silicon Valley it will always only be one of many innovative technologies.
Zug — Regulatory First Mover
Zug ranks third in our survey. The Swiss Canton quickly became “Crypto Valley” when many crypto projects, especially the ones that launched ICOs, set up companies or foundations in order to benefit from the favorable tax treatment. In addition, the Swiss financial regulator FinMa was one of the earliest regulators to publish ICO guidelines in February 2018. Consequently, Zug is ranked among the highest on regulatory friendliness. This in turn made Zug the (legal) home for many projects, most notably the Ethereum Foundation, and created an initial ecosystem. Local initiatives like the Crypto Valley Association try to capitalize on this further, giving Zug also a high score in “activity of the community”. However, after the initial momentum, Zug’s future outlook is ranked rather low, as other regions follow with favorable regulation and more talent access.
Berlin — The Crypto Spirit Animal (?)
Berlin takes the fourth place, ranking particularly high on “activity of community” and “talent access”. Berlin has a vibrant ecosystems with many meetups (e.g. hosted by the Epicenter podcast, Web3 Foundation) and its own Blockchain co-working space, Fullnode. There are several crypto companies that have gained global attention, such as IOTA, which have attracted a strong talent pool. As a Germany-based fund, Earlybird is a proud backer of three Berlin based crypto companies, Ocean Protocol, Xain and Bitwala. We also like the idea of Berlin being the “spirit animal” of Crypto with its libertarian, anti-corporate, possibly sometimes anarchistic vibe, and its history of oppression by a central force. On the other hand, Germany is undoubtedly behind regarding regulation, there is no visible strategy to promote Crypto by lawmakers or regulators, and the tax burden is comparatively high.
New York — Financial Capital with Tough Regulation
The fifth place goes to New York City which ranks highest in the category “activity of the community”. Similar to Berlin, there a numerous crypto meetups as well as three of the largest industry conferences, Consensus, Token Summit and Ethereal. Some of the best known projects in the space are based here, for example Consensys (which has over 900 employees globally), or the crypto exchange Gemini which is run by the Winklevoss twins. Also, a number of well-known investors such as Union Square Ventures, Placeholder and Coinfund are based here. Despite all these strengths, however, New York has a big disadvantage in terms of regulation. The New York State Department of Financial Services issued the BitLicense framework in 2015 to regulate electronic money exchanges, under which all crypto companies fall. The registration process received a lot of criticism from the community for being cumbersome, time-consuming and expensive, and consequently NYC ranks extremely low on regulatory friendliness in our survey, affecting its overall rank. Nevertheless, New York is one of the most important crypto hubs. In fact, New York has the highest number of job openings in the crypto space worldwide, according to Glassdoor data, which might explain why the future importance of the city is rated amongst the highest in our survey.
London — Promising Setup for the Future
London comes in second to last in our survey, ranking rather low across all categories, with the exception of future importance — where it scores highest overall. London was not one of the first cities to emerge as a crypto hub, but with the city being Europe’s fintech capital, as well as home to many VC firms, it is not surprising that a fairly active crypto community has evolved. Mirroring this, Consensys chose London as the location for its European hub which opened in November 2017. Furthermore, the large universities in the area are quite active in the industry, for example through the Imperial College’s Center for Cryptocurrency Research and Engineering and the Cambridge Center for Alternative Finance. However, London seems to lack large startup role models from the crypto space (for now), as well as investors focusing on crypto, with the exception of Fabric Ventures. Also, the impending Brexit likely adds uncertainty for new companies. In light of this, the high score in Future Importance seems somewhat surprising and at this point we can’t think of a particular reason for this result.
China (as a whole) — Government Endorsed Development
China (as a whole) ranks last in our short survey, with ranking particularly low on regulatory friendliness. Although multiple cities within China are blockchain hubs, we counted them as one, due to the limited visibility into the ecosystem from outside, as well as its strong dependency on the government. The Chinese government follows a double-track approach of saying “no to crypto, but yes to blockchain” according to the Abacus China Internet Report. This means that the Chinese government supports research and development related to the blockchain technology itself, but has prohibited most activities around cryptocurrencies, including running exchanges and conducting ICOs. Furthermore, beginning of 2018, all foreign websites related to crypto were banned. There are a some globally well-known Chinese crypto projects, such as NEO, the “Chinese Ethereum”. However, considering China’s powerful and highly involved government, the question has been raised frequently, how decentralized a crypto project based in China can actually be. That said, besides projects based on a blockchain, China has produced some of the most important infrastructure companies, especially Bitmain, the world’s largest producer of ASIC chips and operator of the two largest Bitcoin mining pools, BTC.com and Antpool. To summarize, China certainly has a high activity in blockchain and crypto, but it seems that it will remain a somewhat isolated ecosystem compared to the rest of the world.
Further hubs not part of our initial survey
Besides rating our seven crypto hubs, we asked our survey participants, which other cities they would identify as important for the crypto industry, especially going forward. Numerous cities were mentioned — some that were mentioned multiple times are Hong Kong, Seoul and Ho Chi Minh City. But the one that was mentiond by far the most (by over 50% of the participants) was Malta. Malta has recently developed strong momentum and has attracted a number crypto businesses, first and foremost Binance, which move its headquarter to the island from Hong Kong. The reason for this is the new regulatory framework (see here and here) by the Maltese financial regulator MFSA that went into effect as of November 2018. According to the MFSA, the framework takes into account the financial as well as technological aspects of blockchain and takes a broad, principles-based approach, rather than applying numerous specific rules. This dedicated regulatory framework understandably seems attractive to crypto-companies compared to other jurisdictions which in many cases have been criticized to apply existing (and often outdated) regulatory frameworks that were made for another generation of financial products.
Conclusion and Outlook — Spring is coming (hopefully)
To summarize, no city or region has established itself as the dominant location for the (still very young) crypto economy. We’ve looked at a number of attractive locations to build a crypto project, each with its pros and cons. Our survey suggests this as well, as the results overall are rather close and show tendencies at most (and once again, this survey is by no means representative). Singapore, Silicon Valley and Zug take the top three spots as the most attractive locations today. The three locations with highest future importance are London, New York and again Singapore. What these locations have in common is a vibrant startup and crypto ecosystem, which seems to be really important. However, it seems that regulatory friendliness, or more specifically an adequate approach to regulating this new technology, is the other key ingredient to attracting startups, as shown by Singapore and the recent success of Malta. This is something that is not in the hands of the community, but rather of the governments and financial regulators. If one believes that blockchain indeed is a fundamental technological innovation (which we firmly do at Earlybird), there will be a large industry developing on top of it, and it might be a very smart decision for lawmakers and regulators to establish their region as an attractive one for crypto businesses. As long as there is no clear winner, perhaps there is even potential for an “Amazon-style” approach, where several large crypto businesses start a tender process and move their headquarters (and therefore, their tax payments) to the region that best caters their needs. Then again, blockchain is decentralized by its very nature, so perhaps there won’t be a “Silicon Valley for Crypto” and there will be many important hubs around the world. We kind of like that scenario and are excited to see how the landscape will evolve when the crypto community moves from winter into its next spring…
Many thanks go to our recent intern Verena Scheffczyk for her valuable support in conducting the survey and proofreading the article!