Quantum computers have the potential to break the most advanced cryptographic protocols—including those used for blockchain protocols—in operation today. This is because quantum computers, which rely on principles of quantum mechanics, can in theory complete certain computationally intensive operations that would take today’s classical computers an extraordinary amount of time.
A quantum computer works by using quantum bits, or qubits. In contrast to traditional binary bits, which can only be either 0 or 1, qubits can be a combination of 0 and 1 at the same time. This property of qubits, known as superposition, enables quantum computers to perform multiple calculations in parallel. Additionally, a phenomenon known as entanglement allows two qubits to be linked in such a manner 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 utility. They’re 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 handful of companies and researchers, and it may take a decade or more for quantum computers to impact current cryptographic protocols.
However, recent research suggests that this inflection point may come sooner than anticipated. A June 2023 paper by IBM and UC Berkeley researchers demonstrated that even noisy, error-prone quantum computers can provide utility beyond what’s capable 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, enabling bad actors to control, and ultimately steal, others’ cryptocurrencies.
Quantum computers thus could 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 currently securing the protocol to quantum-resistant cryptography.
Investors, users, and regulators must carefully consider the potential risks quantum computers pose to cryptocurrencies and blockchain technology more generally.
Disruption of Cryptocurrency Mining
Many of the world’s most popular and widely used cryptocurrencies, including Bitcoin, rely on proof-of-workmining to secure 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 block rewards.
A quantum computer eventually could solve mining puzzles much faster than current-generation mining devices, allowing those with access to quantum computers to amass mining rewards and control the transaction validation process by taking over a majority of the network’s computing power. This is known as a 51% attack. Researchers have suggested that 51% attacks on bitcoin by quantum computers may not be possible until 2028 at the earliest though,recent evidence indicates it could happen sooner.
Decryption and Theft of Private Keys
Quantum computers capable of breaking modern cryptography may also enable bad actors to control and steal other people’s cryptocurrency. Specifically, future quantum computers in the future could ascertain cryptocurrency private keys from their corresponding public addresses, as private keys are encrypted using what are known as digital signature schemes based on modern cryptographic protocols. This would be akin to a hacker gaining access to a victim’s email password based on the 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 ever-growing and integral part of investment portfolios of both retail and institutional investors across the globe. Although not an immediate threat, quantum computers could soon pose significant and material risks to this burgeoning and resilient asset class.
As such, there may be certain circumstances where various entities, including asset managers and public companies, may want to consider publicly disclosing the impact quantum computers could have on cryptocurrency investments or investment strategies involving cryptocurrencies.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Daniel Davis is partner and co-chair in Katten’s financial markets and regulation practice.
Alexander Kim is an associate in Katten’s financial markets and regulation practice.
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