A global central bank test lab has created a prototype bitcoin monitoring system to provide authorities with a better understanding of how, when, and where the cryptocurrency is used.
The Atlas project by Bank for International Settlements (BIS) began more than five years ago at the Dutch central bank, but its potential worth has been highlighted in the last 18 months by a series of chaotic collapses across the crypto industry.
Atlas developed a “proof of concept” platform that sucks data from both publicly available “on-chain” crypto ledgers and more difficult to obtain “off-chain” data reported by only a few exchanges and users.
That data then provides a basic picture of bitcoin activities; however, it is not always precise because crypto wallets can be set up anonymously and without the owner indicating location.
“An initial analysis of data collected by the platform indicates that cross-border flows are substantial in economic terms and unevenly distributed across geographical regions,” the BIS stated, while noting the “uncertainty”.
Regulators are growing concerned that the decentralized nature of cryptocurrencies poses a risk, particularly following the collapse last year of a widely used stablecoin pair, Luna and TerraUSD, as well as the FTX platform.
The BIS’s ‘innovation hub’ prototype generates “dashboards” that display information such as how much bitcoins are being changed into US dollars at certain periods across the world.
They can also shed light on the adoption and relative importance of cryptocurrency marketplaces as they rise and decline in popularity.
According to the BIS, cross-border crypto movements are especially important for central banks in the context of cross-border payments, economic analysis, and balance of payments statistics.
They may constitute a large portion of cross-border transfers for some nations, which is difficult to quantify due to data gaps.
“Central banks need to gain first-hand knowledge of crypto and DeFi and the risks and opportunities they present to the financial system,” according to the BIS.
It went on to say that the dashboards would now be made available to a group of “test” central banks for input and future development.