Quantum computers and the threat to cryptocurrencies
Quantum computing is a rapidly emerging technology that harnesses the laws of quantum mechanics to solve problems too complex for classical computers.
Blockchain is a decentralized accounting system that verifies records through a shared ledger of transactions. Each computer in the network hosts a copy of the ledger, and when a transaction is completed, it is verified against the ledger stored on all the other network computers. If all the ledgers match, then that transaction is encrypted with others into what’s known as a block. The new block is then added to existing blocks to form a chain of blocks or a blockchain.
The potential uses of blockchain extend far beyond cryptocurrencies. They include securing electronic health records, creating smart contracts, and electronic voting. Blockchain is even being touted as the potential solution to the Department of Defense’s (DoD) logistics challenges — from DoD’s perspective, the consensus structure of blockchain mitigates the security risks of a single point of failure and allows for inventory suppliers, both large and small to track their shipments.
Quantum computers, currently in development, will be more powerful than today’s classical computers because quantum physics drives them. Rather than using a binary system of bits, where each Bit is 1 or 0, quantum computers use quantum bits or “qubits” composed of physical particles, often single photons. Because a bit is only ever 1 or 0, a classical computer calculates in a linear fashion. In contrast, the quantum physical properties of superposition and entanglement mean a qubit is both 1 and 0 simultaneously, which allows for exponentially greater computing power.
At the same time, quantum computers pose a significant threat to the asymmetric encryption system used to secure most electronic data, including blockchain. This system relies on math problems that take too long for a classical computer to solve. The only way to crack this encryption is to reverse factor a large semiprime number to its original primes. Such a calculation takes eons for a classical computer but will be instantaneous for a sizeable universal quantum computer — even against the blockchain.
100 billion, the amount one foreign nation-state is spending to build a quantum computer that can break existing cryptography.
Incorporating emerging quantum cybersecurity in three stages can save blockchain from the fate of other systems made obsolete by new technologies.
The first and most immediate solution is to strengthen existing encryption algorithms by adding in genuinely random numbers, or so-called quantum keys, which are the world’s most robust encryption keys. True randomness can only be found in nature, which is why scientists measure the crackle of energy in the fabric of the universe as it spontaneously creates and self-destructs. Quantum physicists harness this crackling quantum noise and convert it into true random numbers.
Quantum random-number generators are already being implemented today by banks, governments, and private cloud carriers. Adding quantum keys to blockchain software and all encrypted data will provide added security. The next step is to develop quantum-resistant algorithms, both a classical computer and a quantum computer. Quantum-resistant algorithms, also known as post-quantum, quantum-secure, and quantum-safe, are cryptographic algorithms that can fend off attacks from quantum computers.
The third method is quantum networks, which use hardware technology called quantum key distribution to send information from one point to another by encoding data on individual particles. Any attempted hack automatically severs the connection.
Blockchain consensus vulnerability
Miners play an essential role in validating transactions on the blockchain, allowing them to develop even further. A 51% attack is possibly the most dreaded threat in the entire blockchain business. These attacks are more likely to occur in the chain’s early stage, and a 51% attack does not apply to enterprise or private blockchains.
A 51% attack occurs when a single individual or organization (malicious hackers) collects more than half of the hash rate and seizes control of the entire system, which can be disastrous. Hackers can modify the order of transactions and prevent them from being confirmed. They can even reverse previously completed transactions, resulting in double-spending.
To prevent 51% attacks:
• Improve mining pool monitoring.
• Make sure that the hash rate is higher.
• Avoid using proof-of-work (PoW) consensus procedures.
Bitcoin will be very vulnerable to quantum attacks using Shor’s algorithm. The most widespread vulnerability open to attack will be transactions that have been declared to the network and not yet added to a block. The most vulnerable accounts are those that divulged their public key in the earlier days of the Bitcoin network. Finally, Bitcoin’s consensus mechanism exhibits a vulnerability to Grover algorithm-based attacks. However, since Grover’s algorithm only provides a quadratic advantage, advances in classical computer technology will likely keep Bitcoin secure against this type of attack for much longer than for Shor’s algorithm-based attacks.
Quantum resistant blockchain
United States banking giant JPMorgan Chase has unveiled research on a quantum key distribution (QKD) blockchain network that is resistant to quantum computing attacks.
QKD utilizes quantum mechanics and cryptography to enable two parties to exchange secure data and detect and defend against third parties attempting to eavesdrop on the exchange. The technology is seen as a viable defense against potential blockchain hacks that quantum computers could conduct in the future.
Bitcoin & Blockchain
The total value erased in the event of a quantum hack would be greater than the market cap of digital assets alone.
Direct losses to crypto investors
- Loss in unrealized gains & loss of principal
- Leverage & margin trading
- Stablecoins i.e., value pegged to another asset
Indirect losses and macroeconomic contasion
- Link in the volatility of crypto to assets in broader traditional markets
- Loss due to liquidity crunch
- Loss due to integration of crypto in main street finances
The total loss to the US economy is approximately -3.34 trillion in current value.
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