A banking test lab has created a bitcoin monitoring system to offer authorities insights into cryptocurrency usage patterns. 

The Bank for International Settlements (BIS) project, codenamed Atlas, began over five years ago at the Dutch central bank. Its significance has grown in the wake of recent tumult in the crypto industry.

The Atlas project has announced a “proof of concept” platform that aggregates data from both publicly accessible “on-chain” crypto ledgers and the more elusive “off-chain” data, which is reported only by select exchanges and users. 

This amalgamation of data is designed to provide a broad view of cryptocurrency activity, albeit with limitations, given that crypto wallets can be established anonymously without specifying the owner's location.

The BIS notes that; “although relatively small compared with total on-chain network traffic, identified flows between crypto exchanges are significant and substantial economically”. “Attributing geographical areas to exchanges (where possible) lays out the structure of cross-border flows. Thus, Project Atlas provides a starting point for structural analysis across jurisdictions.”

However, the group acknowledges the inherent “uncertainty” in the data.

Concerns among regulators have intensified due to the decentralised nature of cryptocurrencies, particularly following the collapse of widely-used stablecoin pair Luna and TerraUSD and the FTX platform last year.

The BIS's ‘innovation hub’ prototype generates “dashboards” displaying information such as the volume of bitcoin converted into US dollars in specific regions at specific times. 

These dashboards can also offer insights into the adoption and relative significance of crypto markets as they experience fluctuations in popularity.

Cross-border crypto flows hold particular importance for central banks, especially in the context of cross-border payments, economic analysis, and balance of payments statistics. 

For some nations, these flows may constitute a substantial yet challenging-to-quantify portion of cross-border transfers due to existing data gaps.

The BIS says there is a need for central banks to acquire firsthand knowledge of cryptocurrencies and decentralised finance (DeFi), along with the associated risks and opportunities they pose to the financial system. 

The group says these dashboards will soon be made available to a group of “test” central banks for feedback and further development.

Project Atlas is a collaborative effort involving the BIS Innovation Hub Eurosystem Centre, De Nederlandsche Bank, and the Deutsche Bundesbank. 

It aims to shed light on the macroeconomic significance of crypto asset markets and DeFi by providing tailored data to central banks and financial regulators.