When Crypto Meets Quantum
Quantum computing is pushing computational power to new limits and will disrupt and revolutionize fields such as cryptography, blockchain technology and artificial intelligence.
We have received several queries from investors as to the impact that quantum will have on crypto. The answer is nuanced. There is no consensus on how quickly usable quantum computers will arrive and their emergence will create both risks and opportunities for the digital asset industry. This month we will explore these complexities, delving into what quantum computing is and how it could shape the future of crypto.
To kick things off, let’s start with some computing basics. Classical computers, that we all currently use today, operate using binary logic. What this means is that information is processed in the form of “bits” that represent either a 0 or a 1. These bits are combined to create binary code, which is the foundation of all digital information. Whether you are surfing the web, calling an Uber, playing an online game or shopping on Amazon, you are interacting with information that is processed using binary logic and a sequence of 0s and 1s.
Classical computers use a central processing unit (CPU) to execute instructions from software programs. The instructions are a series of logical and arithmetic operations, and the system relies on a sequence of signals that produce output in a linear, step-by-step manner. While extremely effective for many tasks, classical computers face limitations when solving complex problems that require massive amounts of calculations, such as simulating molecular interactions or breaking advanced encryption.
Quantum computers take a new approach to computation that leverages the principles of quantum mechanics. Unlike classical computers, which process information in binary bits (0s and 1s), quantum computers use qubits—quantum bits that can exist in multiple states simultaneously due to a property called superposition. This allows quantum computers to process a vast number of possibilities at once, giving them the potential to solve certain complex problems exponentially faster than classical computers.
To give an example here, imagine a maze so complex that it has trillions upon trillions of possible paths, with only one correct route to the finish line. A classical computer works sequentially and so will need to check each path one at a time. It could take the classical computer millions of years to find the solution. On the other hand, a quantum computer would leverage superposition to explore all possible paths simultaneously. With the help of quantum interference, it can cancel out incorrect paths and amplify the correct one. By doing so it will “magically” find the exit immediately, as if it chose the correct path on its very first try. This example is not theoretical – it forms the basis of Grover’s search algorithm, which can search unsorted data much faster than any classical approach.
So how will quantum computers impact crypto? Blockchain technology relies heavily on cryptographic algorithms to secure transactions and protect data. Many of these algorithms, such as RSA (Rivest–Shamir–Adleman) and ECC (elliptic curve cryptography), are based on the difficulty of factoring large numbers or solving discrete logarithmic problems—tasks that would take classical computers millions of years to accomplish. However, functional quantum computers, with algorithms like Shor’s algorithm, could break these cryptographic defenses in minutes or even seconds. This is obviously problematic!
When it comes to Bitcoin and digital assets, there are several concerns about threats that quantum computing poses. Specifically, a quantum computer could in theory:
- Access Bitcoin wallets: A quantum computer could derive private keys from public keys, by compromising the Elliptic Curve Digital Signature Algorithm (ECDSA) that Bitcoin uses. This would allow unauthorized access to Bitcoin wallets. Approximately 25% of bitcoins in circulation are currently vulnerable to quantum attacks, especially those in Pay-to-Public-Key (P2PK) addresses and reused Pay-to-Public-Key-Hash (P2PKH) addresses.
- Disrupt bitcoin mining: Bitcoin relies on a Proof-of-Work (PoW) system, where miners solve complex mathematical puzzles to validate transactions and add new blocks to the blockchain. Quantum computers, with their advanced computational capabilities, could potentially solve these puzzles more efficiently than classical computers, leading to a disproportionate advantage for quantum-equipped miners. This could result in centralization of mining power, undermining the decentralized nature of the Bitcoin network and posing security risks.
- Manipulate blockchain data: A quantum computer could exploit vulnerabilities in Bitcoin's hashing algorithm, SHA-256. By finding hash collisions or reversing the hashing process, a quantum adversary could manipulate blockchain data, potentially allowing for double-spending or the altering of transaction records. In extreme scenarios, a powerful quantum computer could execute a 51% attack, gaining control of the majority of the network's computational power. This would enable the attacker to rewrite the blockchain history, compromising the integrity of the entire system.
Admittedly, this is scary stuff. However, there are three key takeaways that make the above scenarios less concerning:
- Quantum attacks are avoidable with the right upgrades.
- Quantum technology can help make blockchains more secure.
- We still have time to solve the quantum conundrum.
Firstly, upgrading to quantum resistant algorithms make quantum attacks avoidable. For example, lattice-based cryptography and hash-based signatures are hard for quantum computers to solve. They involve an enormous number of possibilities in high-dimensional spaces. We are yet to develop algorithms for quantum computers that can break this cryptography.
To protect Bitcoin from quantum computing attacks, a few upgrades would need to happen. A relatively simple upgrade would be to the Bitcoin mining algorithm. Miners would need to agree to this, but it should be uncontentious. A more challenging upgrade would be to Bitcoin wallets. These wallets would need to be upgraded to generate quantum-resistant addresses, and bitcoiners would need to move their funds to these secure addresses. This would require significant coordination within the Bitcoin community, but it is possible to do. From a social perspective, the community would need to decide what to do with coins that do not migrate to quantum resistant addresses. For example, should Satoshi’s wallet, which has not been touched for over a decade, not move its coins the community would need to decide whether to burn these coins in a hard fork or let them be quantum attacked and stolen.
The second takeaway is that quantum computing offers benefits to crypto. Quantum cryptography is more secure than non-quantum and so following a quantum upgrade, blockchains will become more resilient. We can also expect faster transaction processing, which is a major bottleneck for many chains today. Quantum computers will optimize transaction verification processes and consensus algorithms, resulting in faster block validation. This will reduce transaction latency and increase throughput, addressing scalability issues and making blockchain systems more efficient.
There is also the possibility that the integration of quantum and crypto will uncover entirely new use cases for crypto. Quantum computers will be exceptional at solving real-time optimization problems. This could radically improve applications in DeFi and supply chain management. On top of this, fraud detection and risk assessments will vastly improve through the use of quantum powered AI agents. We could also see blockchains become vastly more energy efficient with quantum computers optimizing mining processes.
The third and final takeaway is that we are still years away from a practical quantum computing threat. Quantum computing is in its early stages, with prototypes and small-scale quantum systems being developed by companies like IBM, Google, and Microsoft. The immediate risk remains low, as current quantum computers lack the necessary power to perform these attacks. A 2022 study by Universal Quantum estimated that a quantum computer with 13 million stable, error-corrected qubits could break a Bitcoin private key in a day. Today, IBM is reported to have the most advanced quantum processor, named Condor, which has only 1,121 qubits. We still need a 10,000x improvement in processing power to fully break Bitcoin.
So how quickly will this threat arrive? There is broad agreement amongst experts that quantum computing will not pose a problem to Bitcoin and existing blockchains until sometime in the 2030s or later. Current quantum computers, while impressive, are far from the scale and stability needed to break Bitcoin’s cryptographic algorithms. With the development of quantum-resistant algorithms already underway, it seems that as an industry we still have time to adapt.
Quantum computing is exciting, fascinating and coming. Its arrival will bring risks to crypto but also offers opportunities to harden and future-proof blockchain technology. The fact that quantum computing is already bringing a level of concern and fear to crypto participants is a good thing. It means that we are likely to find upgrades and solutions before the problem manifests. At CMCC Global, quantum computing is a ground-breaking development that we are keeping a keen eye on. While we are yet to invest in quantum specific companies, we are starting to see companies pitching quantum resistant technologies and this could become an area of investment in the coming years. We are excited to track the field as it develops and support innovations that will bring about a quantum-ready future for crypto.
