Bitcoin’s existential threat

I have been asked to comment on Bitcoin. On a short-term basis, BTC is testing support while exhibiting a positive RSI divergence. That’s the good news.


The bad news is BTC and other cryptocurrencies are facing an existential threat.



The quantum computing threat

I came across a Decrypt article entitled “Quantum computers could crack Bitcoin by 2022”. While the 2022 time frame is a bit of hyperbole, the point is well taken.

If you had a powerful enough computer, you could, theoretically, take control of the Bitcoin blockchain. You could credit your account with free Bitcoin or prevent others from making transactions. Since the private key to each wallet can be derived from a public key, you could access the Bitcoin wallet of whomever you wished. The keys to the $163 billion castle would be yours—of course, in that scenario, Bitcoin’s price would surely plummet as soon as its claims of invulnerability were found to be baseless.


Whereas even the most powerful supercomputer would take thousands of years to crack Bitcoin, there are machines that could, theoretically, do so in a matter of seconds. These ultra-fast devices are called quantum computers.


And they’re real—currently in development by some of the finest minds on the planet. 


Some experts told Decrypt that it’s already too late for Bitcoin; quantum computers, developed in secrecy by governments, could corrupt the blockchain in just a few years’ time.
Here’s why:

Bitcoin uses something called the Elliptical Curve Digital Signature Algorithm (ECDSA) to sign digital signatures, and uses a cryptography standard called SHA-256 to hash blocks on the chain. 


With Bitcoin, a private key, picked at random, is run through these algorithms to generate a public key. And the Bitcoin protocol uses the hash value of this to create a public Bitcoin address. 


A quantum computer could reverse this process and derive the private key from a public one. And voila! Bitcoin’s claim of inviolability and unhackability is gone, and you have access to any Bitcoin wallet you want. 


Two major quantum algorithms that threaten the current state of cryptography have already been developed: Grover’s and Shor’s algorithms.


Rob Campbell, President at Baltimore, Maryland-based Med Cybersecurity, told Decrypt that quantum computers using both Grover’s and Shor’s algorithm could also “mine much faster than everyone else, and therefore an adversary could insert its own blocks and undermine the entire blockchain.” 


What’s the time frame?
It’s estimated that you’d need a quantum computer with at least 4,000 qubits—the unit that denotes the power of a quantum computer—to crack Bitcoin’s code. The thing is, the most powerful quantum computers today are… decidedly less powerful. In October 2019, Google announced a quantum computer with 54 qubits; it’s the most powerful quantum computer announced in the public domain.  
But Campbell said that major companies, such as Google, Amazon, Microsoft and IBM are making “rapid progress,” as are a host of smaller companies. 


So how long until the quantum computing threat becomes a problem for Bitcoin? It depends whom you ask. At the World Economic Forum in Davos, Sundar Pichai, CEO of Google’s parent company, Alphabet, was among the first major figures to put a deadline on it. He said: “In a five to 10 year time frame, quantum computing will break encryption as we know it today.”


Advances are being made in quantum computing at astonishing rates. A recent article published by the University of Waterloo announced “Combining classical and quantum computing opens door to new discoveries”.
Researchers have discovered a new and more efficient computing method for pairing the reliability of a classical computer with the strength of a quantum system.


This new computing method opens the door to different algorithms and experiments that bring quantum researchers closer to near-term applications and discoveries of the technology.


“In the future, quantum computers could be used in a wide variety of applications including helping to remove carbon dioxide from the atmosphere, developing artificial limbs and designing more efficient pharmaceuticals,” said Christine Muschik, a principal investigator at the Institute for Quantum Computing (IQC) and a faculty member in physics and astronomy at the University of Waterloo.


Wallet security

These factors put into question the security of a cryptocurrency wallet. Occasionally, there have been stories about investors losing control of their wallets owing to irregularities at a cryptocurrency platform. A recent example occurred in South Africa:
Two brothers associated with one of South Africa’s largest cryptocurrency investment platforms, along with their $3.6 billion USD in Bitcoin, have vanished, according to Bloomberg.


The outlet reported that Hanekom Attorneys, a law firm in Cape Town, said they cannot locate Ameer and Raees Cajee, the founders of Africrypt, and have filed missing person reports to the Hawks, the country’s national police force. The firm also informed crypto exchanges across the world in case there is any attempt to convert the blockchain-backed coins.


In April, Africrypt told its investors that it had been hacked and asked that they did not report the incident to authorities, citing that government involvement would “slow down” the recovery of their missing funds.


“We were immediately suspicious as the announcement implored investors not to take legal action,” the law firm told Bloomberg. “Africrypt employees lost access to the back-end platforms seven days before the alleged hack.” Hanekom Attorneys discovered that the exchange’s pooled funds had been transferred out of its South African accounts and into “tumblers and mixers,” or larger pools of Bitcoin, which made them virtually untraceable.

In the future, similar problems will occur as quantum computing capabilities advance sufficiently to crack private keys. 

If you are a cryptocurrency investor, you are holding hot potatoes whose value could plummet to zero in 5-10 years’ time. You may enjoy the party now, but one day these assets are going to turn into digital beanie babies.

26 thoughts on “Bitcoin’s existential threat

  1. A bold forecast!
    All of this assumes that:
    1. Quantum Computers, when capable, will be employed to crack the blockchain keys. I imagine GOOGL, for example, deploying their QC for more productive uses.
    2. There will not be any progress in modifying the algorithms used for blockchain keys. In fact, work has been underway for many years on just such efforts.
    3. Blockchain technologies, and cryptos are just one manifestation, will not be a viable technology.
    4. QC computers will not be used in creating keys for blockchains.
    I think differently, not that I am a big fan of BTC etc.

    1. You have valid points here. Cam’s article today mentioned two articles qualified as entertainment piece. The people quoted in the articles are snake oil salesmen and bad at the trade. The Waterloo professor tried to peddle the same stuff Univ of British Columbia folks tried a little more than 10 years ago. The classical/quantum combo is the only config so far you can come up with to show what you are doing and continue to receive research funding. Recently US Gov abandoned their project in Illinois to research quantum entanglement. Too bad some Argonne /Fermi folks need to find other stuff to do.

      The first article even mentions 4k qubits. Quite absurd. If you can reliably control and detect one qubit quantum state, you will receive a Nobel Prize in two years and join all kinds of academies and receive 100s honor degrees from all world’s big name colleges. You will have beaten Heisenberg. I know this because I was trying to design interface circuits between conventional and quantum computers. I have not worked for any companies for 10 years. About 7 months ago, out of curiosity, I applied for a job at a local quantum computing co. It is based in Berkeley and has operation in Fremont. If you are interested, you can search and get a feel of the co. Some jobs require security clearance. It has a board member who is a former Chairman of the Joint chief of Staff, a marine. I quit after about 6 months there. Life is too short.

      Just one qubit is enough work. I am waiting for someone of Nikola Tesla’s caliber ( I don’t want Einstein) to be born and work on this problem. Reliably on one qubit and then tried to include a network of multiple qubits. Show the math framework in statistical forms first. Waiting for that. I am sure if the person who solved this exists the low temp nuclear fusion will be solved at the same time.

      Too many peddlers: autonomous driving, nuclear fusion, quantum computing, …

  2. IMHO there are risk associated with anti money laundering policies in different countries. Cryptos are widely used for extortion payments. Tax evasion is another justification for regulators to come on board, once regulated, what would be the sex appeal? I also think cryptos have no intrinsic value, so it could plummet for different reasons

  3. Its a strawman argument until it comes to fruition. At which point, developers can just fork the code and update it into something else.

  4. Bitcoin use case is digital gold. However its value comes from intensive mining effort and that it is used as a currency, primarily by Russians and Chinese to facilitate money transfer out of their countries. It needs to be used as a currency to hold its value in my view. The significant efforts by the Chinese government to stop Bitcoin activity will not stop transfers out of China but may massively reduce Bitcoin use. Whether Macau casinos, or other cryptos etc. take its place isn’t clear, but significant reduction in Chinese demand means its price should be much lower (maybe 12k) before the risk reward is compelling. If demand is permanently damaged it may be worth nothing. The underlying economic structure of Bitcoin very much resembles a Ponzi scheme and it is worth keeping that in mind when assessing it as an investment.

  5. The thought of quantum compute being able to crack bitcoin is interesting, but a vulnerable argument. Crypto afficinados will say there are other models like “proof-of-stake”, the viability of quantum computing may be decades out into the future. It almost seems like Bitcoin is a “short too easy” – so market participants see an opportunity of trapping shorts into the trade.
    Given not only Bitcoin’s price, but also the valuation of several high-flying tech stocks (being priced on earnings estimates far out into the future) quantum computing however is an underrated “threat” all by itself. It has the potential of turning the world of semiconductors upside down – and as soon as 4000 qbit quantum machines are starting to look doable, investors may not be willing to wait for those machines to become commercially viable. That day is not too far off into the future. IBM has announced a roadmap to go from 127-qubits in 2021, to 433-qbits in 2022 and a 1121-qubit machine “by 2023”. That doesn’t sound like a distant pipe dream.

  6. Is it possible that a Quantum State version of “bitcoin”, call it “QCoin” could replace current blockchain based financials instruments? A futuristic version of Fiat-Currency replacing gold backed money?

    1. I don’t have a good take on Wednesday. Closing all positions after hours, which cuts the day’s gain to +0.15%.

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