I guess, that it would be possible, but it do not seam easy like just reading the voltage from a DC tacho generator as shown above. I do not think, that the specific time between each edge of the two digital outputs from the encoder would be the same. So each of the four transitions timing would need to be calibrated individually.
Just now I use timer1 of the Arduino Nano for 20 kHz PWM to motor and control of ADC for current measurement. How can other timers be used to measure the time between transitions? Could you provide some link to an encoder, that you might suggest?
I should like to get a bit closer on how it is done, and how accurate it might be in the speed range. I think it can be hard to rely on interrupt routines to measure some timing, and therefor some hardware timer solution is needed to measure the time between these edges from encoder.