The Bank for International Settlements (BIS), in collaboration with a global central bank test lab, has developed a prototype bitcoin monitoring system known as Atlas. This system aims to provide authorities with a clearer understanding of how, when, and where cryptocurrencies are being used.
The project, which began more than five years ago at the Dutch central bank, has gained traction in recent months due to a series of turbulent collapses within the crypto industry. Atlas serves as a “proof of concept” platform that gathers data from both public “on-chain” crypto ledgers and harder-to-source “off-chain” data reported by select exchanges and users.
By collecting this information, Atlas provides a rough picture of cryptocurrency activity. However, given the anonymous and location-independent nature of crypto wallets, the data may not be entirely accurate. Nevertheless, an initial analysis carried out by the platform suggests that cross-border crypto flows are significant, yet unevenly distributed across different geographic regions.
The decentralized nature of cryptocurrencies has raised concerns among regulators, particularly in light of recent failures within the industry. Last year, the collapse of stablecoin pair Luna and TerraUSD, along with the FTX platform, highlighted the risks involved. Consequently, there is a growing need for central banks to gain a deeper understanding of cryptocurrencies and decentralized finance (DeFi), including both the risks and opportunities they pose to the financial system.
The BIS’ innovation hub prototype also generates “dashboards” that offer valuable insights, such as the conversion of bitcoin to US dollars at specific times and in specific parts of the world. These dashboards can shed light on the adoption and relative importance of crypto markets, tracking their popularity as they rise or fall.
The monitoring of cross-border crypto flows is especially relevant for central banks when it comes to cross-border payments, economic analysis, and balance of payments statistics. Current gaps in data make it difficult to quantify the extent of these cross-border transfers, which may represent a significant portion of transfers for certain countries.
The BIS plans to make the dashboards available to a group of “test” central banks to gather feedback and further refine the system. It emphasizes the importance of central banks gaining first-hand knowledge of cryptocurrencies and DeFi to effectively manage the risks and opportunities they present.
In conclusion, the development of the Atlas bitcoin monitoring system demonstrates the increasing interest and efforts by central banks to understand and regulate cryptocurrencies. By providing authorities with a comprehensive overview of crypto activities, the system could play a crucial role in safeguarding financial systems and managing the risks associated with decentralized digital currencies.
