A global central bank test lab has designed a prototype bitcoin monitoring system aimed at giving authorities a clearer picture on how, when and where the cryptocurrency is used.
The Bank for International Settlements (BIS) project, codenamed Atlas, began at the Dutch central bank more than five years ago, but its potential value has been underscored over the last 18 months by a series of chaotic collapses across the crypto industry.
Atlas created a “proof of concept” platform that sucks data from both publicly available “on-chain” crypto ledgers as well as harder to source “off-chain” data reported by only some exchanges and users.
That information then provides a rough picture of cryptocurrency activity, although as crypto wallets can be set up anonymously and without the owner specifying location, it is not necessarily precise.
“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 said, albeit acknowledging the “uncertainty”.
Regulators have become increasingly concerned that the decentralised nature of cryptocurrencies makes them a risk, especially after the collapse last year of widely used stablecoin pair, Luna and TerraUSD and the FTX plaform.
The BIS’ ‘innovation hub’ prototype produces “dashboards” that show information such as how many bitcoin are being converted into US dollars at certain times in certain parts of the world.
They can also provide an insight into the adoption and relative importance of crypto markets as they rise or fall in popularity.
Cross-border crypto flows are particularly relevant for central banks in the context of cross-border payments, economic analysis and balance of payments statistics, the BIS said.
They may represent a significant part of cross-border transfers for some countries that is hard to quantify because of the current gaps in data.
“Central banks need to gain first-hand knowledge of crypto and DeFi and the risks and opportunities they present to the financial system,” the BIS said.
It added the dashboards would now be made available to a group of “test” central banks to gather feedback and for further development.