ECB Establishes a Network to Improve On-Chain and Off-Chain Data to Monitor Crypto-Assets

  • On-chain analysis is complex while off-chain transactions are a growing phenomenon
  • Bank establishes an informal network within ESCB to enhance info on crypto assets

The financial system may be subject to risks from digital currencies, with spillover effects transmitting to the real economy, says European Central Bank in its latest research published August 7.

Indicators show that “crypto-asset market is resilient” but analysis, it says should be interpreted with caution on account of the unavailability of hard transaction data and uncertainties regarding significant price dispersion and wash trading.

The detailed report titled,

“Understanding the crypto-asset phenomenon, its risks and measurement issues,”

says ECB is analyzing the crypto-asset phenomenon to identify and monitor potential implications of monetary policy.

For monitoring, it relies heavily on publicly available third-party aggregated data. But there are still important gaps in the data, particularly relating to payment transactions, including the use of layered protocols.

On-chain Analysis is Complex While off-chain Transactions are a Growing Phenomenon

The number of on-chain transactions for major crypto-assets is growing, but due to the fact that off-chain transactions are not taken into account, it only gives a partial view of total crypto-asset transactions.

On-chain transactions account for only a small fraction of the value of off-chain transactions.

Information concerning on-chain data is often publicly available, though the bank says its analysis can be complex. However, identifying the value of a crypto-asset transaction and whether different crypto-asset wallets belong to the same individual is currently a difficult task. This, it says is likely to become even more challenging in the future.

Off-chain transactions, on the other hand, are a “growing phenomenon” that aims to overcome the constraints of distributed ledgers used for crypto-assets.

An Informal Network to Enhance info on Crypto Assets

Dealing with the complexity and growing challenges of analyzing on-chain and layered protocol transactions, and increasing the availability and transparency of the reported data and the methodologies used, and developing best practices for indicators on crypto-assets for off-chain restrictions are two aspects that ECB says it need to work on.

For this, ECB has established “an informal network on crypto-asset data to analyze options to enhance information on crypto-assets” within the European System of Central Banks (ESCB).

This is expected to provide valuable input that will close the data gaps associated with crypto-assets.

ECB says it will continue to work on indicators and data by dealing with challenges and complexity in analyzing on-chain and layers protocol transactions.

As for off-chain transactions, the bank will focus on harmonizing and enriching the metadata and developing best practices for indicators on crypto-assets.

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