ECB is Raising the Bar with its Crypto Surveillance

In a report released by the European Central Bank (ECB) on Aug 7, it was stated that the central banking community would increase the monitoring of cryptocurrency transactions on-chain and off-chain.   

The report titled, “Understanding the crypto-asset phenomenon, its risks and measurement issues,” claims that the ECB is devising a monitoring framework of the crypto market, by using on-chain data and metadata. Currently, they are relying on monitoring activities on the publicly available data, such as market capitalization, prices, and trading volumes.  

Current Concerns of the Crypto Market  

Generally, public blockchain data is transparent but decentralized and unregulated, which makes it difficult to obtain specific data. The available data on cryptocurrencies are neither complete nor fully reliable. It has been established that it is challenging to understand the emerging market, as there is a data gap concerning cryptocurrency holdings of financial institutions and payments with cryptocurrencies.   

The monitoring of on-chain transactions has been emphasized since the information is publicly available, although identifying if different wallets belong to the same individual or organization is tricky.   

The traditional financial system may be subjected to risks from the crypto market as they are interrelated, “spillover effects may also be transmitted to the real economy,” as the report states.   

Upcoming Approach to Monitor Crypto Assets  

The ECB declared that cryptocurrencies need to be closely monitored as they continue to work on indicators and data and to “deal with the complexity and growing challenges of analyzing on-chain and layered protocol transactions.”  

In regards to improving statistical initiatives, the Irving Fisher Committee (IFC) has set up a working group to explore on fintech data issues. The objective of the group is to analyze and provide recommendations for the central bank statistics related to crypto-assets.   

Further investigations and work will be focused on increasing the availability and transparency of the reported data.  

ECB Report: Cryptocurrencies Pose No Threat to the Economy 

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