3 central banks unveil prototype for global Bitcoin monitoring

Three major financial institutions are collaborating to develop a prototype monitoring system to actively track the international flows of Bitcoin.

Project Atlas, a collaborative effort involving the Bank of International Settlements and the central banks of Germany and the Netherlands, aims to provide customized data on cross-border flows for central banks and financial regulators. 

The “proof of concept” platform combines data from crypto exchanges and public blockchains gathered by nodes, according to a report released Wednesday.

Under the concept, the system tracks crypto asset flows between different locations using Bitcoin network transactions linked to crypto exchanges and their geographical locations as a proxy for cross-border capital movement. 

There could be inaccuracies in this data due to the anonymous nature of crypto wallets, which can be created without specifying the user’s location, the report said.

Initial findings as outlined in the report, indicate that while flows between crypto exchanges constitute a relatively small portion of the overall on-chain network activity, they hold notable economic significance.

“There is a need for central banks and financial regulators to gain firsthand knowledge of crypto asset and DeFi markets, and there is a dearth of reliable and tailored data for such purposes,” the team behind Atlas wrote.

Read more: Like crypto or not, central banks need to prepare, BIS innovate head says 

“Policymakers must understand the underlying data that feed into aggregate indicators to make well informed decisions,” they added.

The cryptocurrency markets encountered one of its worst years in 2022 due to lack of transparency and a liquidity crisis, predominantly triggered by the turmoil involving Sam Bankman-Fried and FTX, resulting in losses for investors.

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The BIS report pointed out other issues such as vulnerabilities exposed in DeFi projects through the $70 million Curve Finance exploit and the collapse of Terra Luna’s algorithmic stablecoin.

To assist policymakers, the front end of Atlas has dashboards that show visual representations of the data aggregation and analysis results.

These dashboards display the total flow in terms of crypto assets converted into US dollars. Additionally, the number of transactions on the network can offer insights into the adoption and significance of crypto markets.

The data platform and dashboards will be shared with other central banks to gather their thoughts on how it can be made better.

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