Herbert Sterchi recounts the history of Crypto Valley

Transcript

My name is Herbert Sterchi. I am 64 years old. I studied at the university in St. Gallen, then went to Sulzer and worked as head of finance in Japan, America and Switzerland, then went to Oracle in Vienna, came back to PricewaterhouseCoopers, then started at Thomson and then Thomsen-Reuters came out of it, and now I've been self-employed for 12 years.

And for twelve years now, I've been an ambassador for IT and blockchain fintech companies for the canton of Zug. Contact with the crypto scene Yes, in the summer of 2013, Guido Bulgheroni contacted me and told me that a blockchain group is coming to Zurich and whether I have time to fill in for him and do a follow-up dinner with Johann Gevers.

And then I went there and things really took off. I then helped Johann found the company Monetas, in December 2013, and Johann Gevers actually introduced me to Ethereum. And then I met Mihai Alisie, Charles Hoskinson, Joe Lubin, Gavin Wood, and all his people who in February gradually came to Zug. And of course we didn't know everything from the beginning but then time passed, where we made an ecosystem and involved a lot of people in it.

And then it turns out we developed a good platform. Herbert's role at Ethereum Yes, I would say I was the Local Swiss Director, who actually took on the risks, the way a director takes risks. Of course he has duties, so I said, "I commit to this and I take the risk." This was the first time I had this responsibility. And secondly, I operationalized the entire company. Be it finance, HR, visas and everything that comes with it, the bank account.

And how to run a company, that we comply with Swiss regulation, because you have to file annual financial statements, tax returns, you have to fill in different forms and so on, and so forth. I operationalized the company, besides being Local Swiss Director. Yes, that was a huge crazy company, and if I think back, it took a lot of energy. But I had this push, and I wanted a fresh start.

I became self-employed in 2011 and then got this opportunity in 2013. Of course, I was absolutely open to everything and said, "Come on, I'll just try it." A lot of people told me that this ether is a WIR currency, and so on. "Are you actually crazy, what are you doing? You're your name on the line." But I'm very happy today that I dared to do that. For me it was a huge risk as a local to play this part.

Then I withdrew a bit after the whole thing was getting going, but then I got back in, just like I said, because I had other companies. But I can say, the first year, I worked very intensely on this operationalization. First impression of Ethereum Yes, of course it was funny when the people parked their Mobility car in the Parkhotel and also got a parking ticket. I went to the offices and people asked me, "Do you have your class with you?

What do you teach?" Of course, they all laughed at me, but I said, "Yes, I believe they have something interesting," although I still didn't understand anything about it. But I was just very open because I like to work with young people and I have seen that they are very smart and that they had to be supported to really get a foothold here. It was all new to me and when I read the white paper by Vitalik, I read it once, but I actually couldn't understand anything.

It is very written in a very complex way. It's incredibly difficult for an amateur to understand, and after the second page you're lost. But then I just continued to educate myself and talked to people and immersed myself in this new topic. But at the beginning it was incredibly difficult, it was a different world, another industry and for someone who grew in a more conservative industry, it was very challenging. Getting the Ethereum founders to Zug So maybe the first thing that we had to manage is the whole tax, legal

and compliance situation. I then got Dr. Samuel Bussmann from MME on board, of course I knew him from PwC. And I told him, "There is something completely new, I don't know what they do exactly but it sounds exciting." And of course he was very open and then brought Luka Müller into the office, and Luka said: “Yes, we’ll look at it and will help you.” And of course I was really happy about that, that they were so open and didn't say no right away.

And that was the legal side of things. Then the second thing is of course the entire infrastructure in regards to the apartment. They were in an AirBnb in Meierskappel, and they said to me: “We have to move out, what should we do?” And then I said: “You come into my 3.5 room apartment at Löwenplatz in Lucerne, you can all live there." And there were 11 people there in my little apartment on the floor. One had a sofa, one was programming, one of them was cooking, the other gave an interview in my bedroom to the TV Station LA.

And I had them with me for two weeks and then of course we had to look for a solution, because this couldn't go on for much longer. And then we were able to secure a house at Grienbachstrasse 55 in Inwil. Of course none of them was Swiss, so that was difficult. But luckily we had Mr. Schleiss, the father of the government councilor Schleiss, who said, "I am also open."

He's also from Zug, he's innovative. He said: “Simply pay me a year in advance and it's yours.” And that was quite a challenge. Then we went to Niklas Nikolajsen in Baar, where Fabian Hediger and Andrej Majcen were as well and they made calculations, and it was very industrial, of course, very start-up like. And he got 74,000 Swiss francs out of the safe that we had to pay for rent. So now how do you pay rent with 74,000 Swiss francs cash? So I went to all the different Post offices and after 20,000 francs the limit was reached.

So I then deposited the money at four post offices, and we received the key to the apartment. Yes, and then we furnished the whole house with IT. Comfox helped, I remember that. Then the beds were installed and we left countless times to IKEA in Rothenburg and bought furniture and blankets there, to set ourselves up there. The fantastic thing about the Grienbachstrasse 55 was that the people were in a small space and only talked about business day and night.

The important thing was, we also bought a large whiteboard which was used for dozens of discussions. And I think that's the advantage of people not wanting to be apart, not having to communicate via Teams and Zoom. These were one-on-one discussions, you were very close to each other. Of course, it had its disadvantages, the social life is of course very demanding when people are so close to each other. The house was actually designed for seven people, but most of the time, 11 to 15 people lived there.

And just like with Forrest Gump's house, where people like Elvis Presley came and people came and went again, it was just like that at Grienbachstrasse 55, a constant coming and going. But the efficiency was incredibly high through all of that. Ehtereum before the ICO The ICO hadn't happened yet. First we had to buy t-shirts. But they only had Bitcoin.

So they asked: “Hey, we’ll pay you Bitcoin, Can you pay for it?” Those were around 500 francs, And they gave me two Bitcoins, and I paid for it. Those were the T-shirts, then we had to create the logo, make the website. And then the very important challenge was of course the visas. And there the economic contact office helped us a lot, they accompanied us, how to write the business plan and that everything was legally sound.

But due to our work on the white paper and our business plan, we wasted an awful lot of time and then applied for the different visas, so the people could stay here. Visas became very important. And secondly was the registration in the municipality of Baar. I still tell companies today that visas and registering are important, but another important thing is a bank account. And of course opening an account was incredibly difficult. We couldn't always get cash from the post office to pay the landlord and the suppliers.

How can I get that done? And then Johann had another idea, so we went to Postfinance in Kriens, filled out all the forms and got a bank account. We then looked at Credit Suisse as well. Later the account was obviously closed, but for at least the first year we could do simple transfers. And then, as a company, you have a visa and a bank account. For a visa, of course we also needed employment contracts, social insurance, these important things we had to get on track.

That wasn't easy because we just had no money yet, there was no liquidity which is typical for start-ups. We tried to just get this infrastructure up and running. And then there were big discussions at the same time because of the ICO. It was one thing to do all the marketing, to make the webpages where people could pay. Mihai Alisie knows all about that, he's well informed in regards to that, Then there were the very technical components covered by Gavin Wood, Charles Hoskinson, who acutally led the whole thing.

And Joe Lubin was absolutely crucial, he financed most of everything, he paid for the pizzas, paid for the restaurant. We also had parties, so you always had to reconcile with the neighbors, because we were too loud. Then they also painted the windows with their ideas, so we had to obviously fix that. It was just like an animal house, but a positive, efficient animal house that had a vision to change the world. The Ethereum ICO I still remember when they said, "Look how the money comes in."

And suddenly there were 18 million. And then the discussions started, "Who contributes how much, who does what, who do we need, who is technologically savvy?" Because those who are technologically savvy tend to have the feeling that they do all the work. Marketing isn't that important. Leadership is also not measurable. And that's where the really big discussions started. And that also led to major conflicts, to disagreements. I know, one midnight I was there and they said, "We can't get any further, we argue.

We don't know how to split things up." I then made the suggestion to them, “Just finish the whole thing first and then you can argue about who gets how much.” And that was 2014. But the money ran out in late 2014 because the Ether price was of course very low. I know it was once 22 cents and then it went up to 70 cents. Of course you didn't have the liquidity of Bitcoin, that once went up to a thousand, then came Mt. Gox and collapsed.

So this wasn't a crypto winter, that was an ice age, and suddenly there was no more money. And then you have these people on the payroll, they were then told, “We pay with ether.” But of course they said, “What, ether is worth 20 cents or 70 cents, what are we supposed to do with that?” But then people agreed to be paid with ether and then came the whole reorganization at the end of the year. Ee reorganized, laid off people, people went back to their home countries. And then again, like a miracle, the whole thing rose like mad in January 2015, and liquidity was no longer

an issue at all. This startup phase is a wonderful phase, a stressful phase, but one remembers it very fondly. That was twelve months of absolute stress, emotionally, socially, but everyone had fun to build something new. Looking back now, it’s fantastic. And maybe that's one business out of a dozen that was successful, and that's where you have joy to have experienced that.

And of course there are many start-ups, where you live through that, but that weren't that successful. Anecdotes from the Ethereum era So yeah, it's funny, when we got to MME in their large meeting room. I still remember, Luka was there in beginning, then Sami Busmann, but Sami then became CFO, so he said goodbye. I actually then also pulled out a bit because I had other projects and couldn't put everything into Ethereum or into these start-ups. But it was funny at the beginning.

You bought the food, held meetings. Of course you were also afraid what to tell the banks. With the banks we talked a lot, we spoke to the compliance offices. But some of them were very, very open and said, “Why should I take such a risk with 100,000 francs if I lose billions?” And they were actually nice and told us that, but it was a challenge. And then of course the whole thing with Finma. With Finma, you had to also teach them how to communicate.

They had to be trained about what we actually did there. That was a long process with long meetings and what was fun, especially in Meierskappel, at these meetings, everything was recorded. I heard that a lot of things were cut out, good scenes were cut out, I hope that wasn't the case too often. It would be a shame because this start-up phase would then no longer be recorded. Every meeting was recorded, if someone asked a question, “What do you mean with decentralization, what is blockchain, what is crypto, how did Bitcoin come about, and so on?”

Everyone held a presentation once, so of course you learned a lot and just pushed these messages up, just how a marketing web message is created, it doesn't just happen in five minutes. And that was fascinating that they always recorded everything. And that they always replayed the recordings and said, “Hey, what did you say there? What did you say here?” And one idea came after another. And that just showed me that innovation is important, so you need to dive deep into it. Recordings help because then you have a chance to reflect on it again.

And the second nice thing is this close, spatial proximity and that you can just get along like a family and speak to each other every minute. And then we created the environment and it was great. So these IKEA trips, they were always funny, they always ate those meatballs and the french fries. They always liked that.

And that was also an experience. It was team building. Today large corporations do workshops, you fly somewhere and visit workshops. We just had them there. We had our workshops in IKEA, we had our workshops when we went for a walk, when we went to the restaurant, or when we cooked together at home or spent all night partying. Those were actually the most efficient, most intensive workshops, that just happened so naturally, where in a large company, meetings always were institutionalized and formal.

It was just spontaneous, and I still believe today that it was also a recipe for success. This spontaneity where you don't say, “At three, will I see you then?” No, I'll come to your room at two in the morning and say, “I have an idea, what do you think?” Let's go and do this. Just very, very powerful, something like that. The ICO boom of 2017 Of course there was a mania with the ICO, and then we specialized in how to do tokenomics, how to handle the liquidity, And of course that was, again,

such a pioneering activity, where you took a huge risk and there were huge amounts of money there. And I knew companies that had initially 7 million francs in ether, and suddenly they had 240 million franks because the ether price went up so high. And what I then observed was, in the beginning, the luck that we actually had. Some companies really have a lot of great success, but then there were many, many companies that were not successful.

There was too much money in it, you had arguments and the whole structure with people that get too much money too fast. They then spent it extravagantly, they'd buy mahogany furniture, marble columns, two Ferraris parked out front. And then money is needed for a yacht somewhere, an office on Wall Street, somehow costing $100,000 a month, and then you really don't conduct business reasonably. And some people are like that because they come into contact with a lot of money and then loose their footing a bit.

I've seen that very, very often. And then came the whole legal system, because the law enforcement officers also said, that could also be abused in different areas, for drugs dealing, black markets, money laundering. And then came all the legislation, that was then canceled in 2020. In my opinion we wasted a huge opportunity, that we didn't clearly set this up right. Now there's the legislature, now there are again very large handcuffs, which are put on.

You have to find common ground now and it's slowly leveling off, because it's actually in accordance with the law now. I only know about one major bank where the compliance officer said, “You know, an IPO costs a million and an ICO maybe 50,000 francs. And eventually, the gap will close." And I have to say, he was right about the regulations and everything. It has simply become expensive and the opportunity was actually missed. The Zug 'do-it' mentality Yes, so Crypto Valley, as I experienced it, because I was very close.

So Mihai Alisie, he was with me in a bar, he talked about Crypto Valley, Johann then trademarked the term at home, to make sure we secured it. And then there was Guido Bulgheroni from the Business Relations Office and of course also Beat Bachmann, and Bernhard Neidhart. Bernhard Neidhart had to approve it, so he was clearly the one responsible behind the scenes, who also supported it. And there we were at a table about six people, I think Oliver Bussmann was there, then Thomson Reuters, Johann was there.

We said: “We’re doing Crypto Valley, who will be the president? "I don’t have time, you do it.” And that's actually how it came about. And then they made Crypto Valley, and then that was the way things went. And then with the city of Zug, I know that was Marcel Grepper, I just saw him again now, that's the CFO there. I know him from the University of St. Gallen, he said, “We want to accept Bitcoin for this. Can you invite a few people over?” And that's the beauty, you can call people, Luka Müller, Johann Gevers, Mihai Alisie came, two or three more, then we met at

the Kolinplatz in this beautiful attic room, lined with wood, really great. And that's so crazy, Luka Müller, he moderated it very well. Everyone had their say, he said, “Come on, let's do it, let's finish it.” And that was another pioneering act, listening to that, we analyzed it and introduced it, this 'do-it' mentality. And you can see that with Gianni Bomio in his book, how he describes it, you look at it, if you can risk it, if it's legal, and then you just do it.

That's just the way things went, and then came people like Ralf Glabischnig, Marco Bumbacher and Matthias Ruch. Of course they brought it all to a whole new level. Even with Dubai now, that now went all in, and personally, I see myself more in the start-up scene, while the whole expansion was made by other people.