Cryptocurrency and Quantum Computing — An Overblown Fear?
Cryptocurrency and Quantum Computing

Cryptocurrency and Quantum Computing — An Overblown Fear?

Editorial Team Avatar
Nov 9, 2022
8 min reading time

The looming shadow of quantum computing still hangs over the crypto community but is it a real threat or just a red herring? 

Encryption is the foundation of our modern life and an essential tool for cryptocurrencies. If that encryption were to be broken, it would be impossible for miners to secure the blockchain. Transactions could be forged, and the grand blockchain endeavor could come to a crashing halt. 

For now, it is unviable for even supercomputers to break the blockchain. However, a breakthrough in quantum computing could represent an existential threat. Is it time to divest your holdings in crypto or continue as usual

How Are Quantum Computers Different? 

Existing supercomputers are capable of processing incredible amounts of data but are limited by the fundamental properties of computers. All existing computers process data as bits (1s and 0s) and are forced to process them individually. 

This means that complicated calculations must be solved directly by performing all necessary measures. With encryption, each step of the puzzle must be solved to crack the code. This would take too long for it to be worth the time. 

Quantum computers are a game-changer. They are designed to capture Qubits in a stable state and take advantage of two unique properties of quantum physics to process data at lightning speeds: 

  • Superposition: Unlike bits, which are fixed, Qubits can hold all possible combinations of 1 and 0 simultaneously. This allows multiple qubits to process an enormous number of different outcomes together. As more qubits are added, the processing power of a quantum computer grows exponentially. This means even minor improvements can have an outsized impact. 
  • Entanglement: This effect is made even more powerful when a quantum computer generates entangled qubits. This makes it possible to change the state of one qubit and predictably alter the conditions of all other qubits it is entangled with. This enables multiple qubits to work in parallel, significantly increasing the processing power of each qubit. 

The ramifications of a computer reaching quantum supremacy, or the ability to consistently outperform traditional computers, would be huge. It would help to propel research forward by decades and could be the next stepping stone in human development. But it could also render cryptography obsolete overnight. 

Most major blockchains rely upon ECDSA (Elliptical Curve Digital Signature Algorithm). This allows blockchains to create a random 256-bit private key and a linked public key that can be shared with third parties without revealing that private key. 

It would theoretically be trivial for a quantum computer to unravel the relationship between those keys, which could allow a wallet to be hacked and the funds liquidated. 

Another problem is that a quantum computer could dominate traditional Proof of Work (PoW) consensus networks and commit a 51% attack. This would enable it to control a blockchain and approve fraudulent blocks. 

We Could Be Decades Away from Quantum Computers 

Despite the potential of quantum computers, they likely aren’t set to be the breakthrough event some are predicting. Google has claimed to reach quantum supremacy, but its algorithm had no practical purpose. In essence, all existing quantum computers are just proof of concepts, and we have yet to use them to tackle a real-world problem, such as breaking encryption. 

Even if we find a breakthrough and reach true quantum supremacy, the scalability problems may prevent quantum computers from being useful outside a lab setting. With the effect of decoherence, even tiny vibrations or changes in temperature can cause a quantum computer to fail. This would make them worthless in most settings and difficult for bad actors to acquire, let alone use. 

The other big unknown is how quickly quantum computing can advance. Moore’s Law suggests a doubling of transistor counts every two years. But this doesn’t necessarily apply to quantum computers. 

Given the complicated electronics used in quantum machines, it is likely that we will experience significant hurdles trying to expand capacity. We may be limited to machines with a small number of qubits. In short, even if we do build a quantum computer, it might not be able to do anything useful for decades. 

What If There Is a Quantum Computing Leap? 

For argument’s sake, let’s assume that Google finds a breakthrough technique for containing qubits in the next six months. This enables the company to build a scalable quantum computer. And through a series of unfortunate events, it falls into the hands of a bad actor. Would this cripple cryptocurrency for good? 

Even if that entirely unlikely set of events were to happen, it might not be the apocalyptic event some predict. Let’s start with the risk of private wallet keys being reverse-engineered. 

Existing best practices stipulate that a wallet should be used once, and then all tokens should be withdrawn into an offline wallet or cold storage. 

Even a quantum computer would need some time to crack a BTC wallet’s private key. At the moment, this would undoubtedly be longer than the average 9 minutes a Bitcoin transaction takes. This means that if a user is following established practices, any attackers should find only empty wallets. 

It should be noted that a sufficiently powerful quantum computer could theoretically break Bitcoin’s existing encryption before a transaction was finished. However, this is unlikely even in the medium term. 

The effect of quantum computers on Proof of Work (PoW) consensus is a little trickier. 

A quantum computer will need time to run all its calculations before concluding. In the meantime, all the traditional miners are actively trying each combination, so the quantum miner will have to hope that everything else has yet to find the solution. Additionally, the cost of running a quantum computer may outstrip the gains of running large numbers of traditional computers in parallel. 

While this argument provides some comfort, not everyone will seek to mine cryptocurrency for economic reasons. If a bad actor could use quantum computers to consistently control 51% of the network, they could use this to completely de-legitimize Bitcoin and other cryptocurrencies. Currently, there would be no defense against this “irrational actor” who seeks to damage blockchain tech for reasons outside of direct profit. 

What Is the Crypto World Doing to Protect Against Quantum Computing? 

While the threat of quantum computers is distant, many organizations are taking it seriously. In 2016, the NIST launched a competition to develop new standards of cryptography that are designed to be quantum-resistant. These new standards could be implemented into existing cryptocurrency projects using hard forks. Thus, they could help quantum-proof the blockchain before quantum computers become widely available. 

Several projects are also working on ways to quantum-proof specific blockchains. One of the most obvious candidates is the Quantum Resistant Ledger (QRL), the first real-world implementation of the eXtended Merkle Signature Scheme (XMSS). This hash-based signature should be significantly more difficult for a quantum computer to crack than existing encryption methods. 

Even leading cryptocurrencies are taking the threat seriously. Ethereum developers have already stated that they will be moving away from the quantum-vulnerable ECDSA encryption methods in Ethereum 2.0. The developers are toying with multiple approaches that could help to shore up the cryptocurrency’s quantum defenses. 

However, Ethereum’s solutions, including the much-anticipated move to Proof of Stake (PoS), still don’t solve the problem of private keys being reverse-engineered. Users still need to reveal their public address to gain access even when staking a cryptocurrency. This leaves them vulnerable to a quantum computer attack. 

Crypto company Particl believes that it has the solution: cold staking. This approach uses multi-signature addresses, allowing you to use a dedicated staking computer connected to your mobile wallet. The machine broadcasts a public key different from your mobile wallet key, making it almost impossible to link it back to it. It’s similar to the two-factor authentication services many tech products offer today. 

Related Article: What Is the Quantum Financial System

The Idea Is Scarier Than the Reality 

Setting aside the practicalities for the moment, the real threat of quantum computing is the market reaction. Most crypto investors (and, let’s face it, journalists) don’t understand quantum computing. If, and it is a big if, we get a viable, scalable quantum computer within the next decade, pundits will fall into a frenzy of fearmongering and headlines predicting the death of cryptocurrency. 

This reaction could be more damaging to crypto than quantum computers themselves. It could trigger a massive sell-off and undermine crypto’s reputation. With this in mind, for image’s sake alone, the crypto community must take reasonable steps to prepare for quantum computers. 

It is equally important that the community takes time to understand the realities of quantum computing. What it can do, and what it can’t do. Quantum computers will undoubtedly change the world, but with a bit of preparation and common sense, they won’t spell the end of cryptocurrency as we know it. 

* The information in this article and the links provided are for general information purposes only and should not constitute any financial or investment advice. We advise you to do your own research or consult a professional before making financial decisions. Please acknowledge that we are not responsible for any loss caused by any information present on this website.
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