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Quantum Computing Could Threaten Blockchain and Crypto
Quantum computers have the potential to break the most advanced cryptographic protocols, including those used for blockchain protocols, in operation today. That’s because quantum computers, which are based on the principles of quantum mechanics, can in theory complete some computationally intensive operations that would take today’s classical computers an extraordinary amount of time.
A quantum computer works using quantum bits or qubits. Unlike traditional binary bits, which can only be 0 or 1, qubits can be a combination of 0 and 1 at the same time. This property of qubits, known as superposition, allows quantum computers to perform multiple calculations in parallel. Additionally, a phenomenon known as entanglement allows two qubits to be connected in such a way that the state of one qubit affects the state of the other, regardless of the physical distance between them. This effect, combined with superposition, allows quantum computers to perform certain calculations even faster.
But today’s quantum computers are finicky and of limited use. They are susceptible to the slightest environmental interference, such as the Earth’s magnetic field, local radiation and even cosmic rays, which make calculations performed by current quantum computers error-prone. Because of these technical and operational challenges, quantum computers are currently accessible to only a small number of companies and researchers, and it could take a decade or more for quantum computers to impact current cryptographic protocols.
However, recent research suggests that this inflection point may be coming sooner than expected. One June 2023 paper from IBM and researchers at UC Berkeley have shown that even noisy and error-prone quantum computers can provide superior utility to that of today’s classical computers.
This potentially accelerated timeline could have far-reaching consequences, including for many cryptocurrencies and their underlying blockchain protocols, as the cryptographic functions and encryption standards they rely on could soon be vulnerable to quantum attacks.
For example, cryptocurrency miners using quantum computers may be able to mine cryptocurrency much faster than other miners. This could threaten the decentralization of many mining-based blockchain protocols. Quantum computers could also decrypt the private key from a public key, allowing bad actors to control and ultimately steal other people’s cryptocurrencies.
Quantum computers could therefore pose a significant threat to cryptocurrencies and blockchain technology. In response, some developers are already working to future-proof their blockchain protocol by exploring ways to transition the cryptography that currently protects the protocol to quantum-resistant cryptography.
Investors, users and regulators need to carefully consider the potential risks that quantum computers pose to cryptocurrencies and blockchain technology more generally.
Stopping Cryptocurrency Mining
Many of the world’s most popular and widely used cryptocurrencies, including Bitcoin, rely on proof-of-work mining to protect the underlying blockchain protocol. A PoW blockchain protocol requires network participants known as miners to compete with each other to be the first to solve complex mathematical puzzles to validate new transactions on the blockchain. The winner of the mining competition is rewarded with cryptocurrency, known as a block reward.
A quantum computer could eventually solve mining puzzles much faster than current-generation mining devices, allowing those with access to quantum computers to accumulate mining rewards and control the transaction validation process by taking on most of the power of network calculation. This is known as the 51% attack. Researchers have suggested that 51% attacks on bitcoin by quantum computers may not be possible before 2028, however, recent evidence indicates it could happen sooner.
Decryption and theft of private keys
Quantum computers capable of breaking modern cryptography could also allow bad actors to control and steal other people’s cryptocurrency. Specifically, future quantum computers could ascertain cryptocurrency private keys from their corresponding public addresses, as private keys are encrypted using so-called digital signature schemes based on modern cryptographic protocols. It would be like a hacker gaining access to a victim’s email password based on their publicly available username or email address.
Researchers generally believe that this type of security threat to public blockchain protocols is more likely to be technologically feasible than a quantum attack on the cryptocurrency mining process due to fundamental differences in the algorithms that would be used to carry out the attacks.
Risks and potential consequences
The global cryptocurrency market capitalization stands at over $1.15 trillion. Cryptocurrencies are an integral and ever-growing part of the investment portfolios of both retail and institutional investors around the world. While not an immediate threat, quantum computers could soon pose significant and material risks to this rapidly growing and resilient asset class.
Therefore, there may be some circumstances where various entities, including asset managers and public companies, may wish to consider publicly disclosing the impact that quantum computers may have on cryptocurrency investments or investment strategies involving cryptocurrencies.
This article does not necessarily reflect the views of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
About the author
Daniel Davis is a partner and co-chair of Katten’s capital markets and regulatory practice.
Alexander Kim is an associate in Katten’s capital markets and regulatory practice.
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