Crypto investors are accustomed to volatility risk. You have to be when prices of coins regularly swing by 10% or more in mere days. Unfortunately, volatility is just one of several potential pitfalls of crypto investing. And sometimes, the short-term noise can make it easy to overlook the bigger, longer-term risks.
Quantum computing is one such long-term threat. Without delving too deeply into how these two complex technologies work, the issue is that if quantum computers become powerful enough, they will pose a significant threat to Bitcoin's (BTC -0.45%) security. If you're a buy-and-hold investor with an interest in crypto, this is an issue you need to have on your radar.
The crypto community thought they had decades before quantum computing became a pressing problem. However, a recent article on Decrypt, a news website focused on the decentralized web, says that experts are now worried that the industry has a decade, or maybe only a handful of years, to prepare. Moreover, around 4 million Bitcoins could be at risk right now.
Bitcoin's quantum computing threat
To be clear, quantum computing is not going to break the cryptographic protection around people's wallets today. However, in 1994, a mathematician called Peter Shor published an algorithm that showed how a quantum computer, if it were powerful enough, could break the encryption standards commonly used nowadays.
It's all about how crypto keys work. Bitcoin and other cryptocurrencies use a system of public and private keys to authenticate transactions. Let's say I wanted to send you some Bitcoin. I would use your public key to make the transfer. You would then use your private key -- like the PIN to your bank card, only much, much longer -- to finalize the transaction.
Each public key is generated from the corresponding private key. Asymmetric cryptography makes it practically impossible to reverse-engineer a private key from a public one. Using classical computers -- the digital type with which we are all familiar -- the task would require a prohibitive amount of time and computing power. But it isn't impossible.
Quantum computers, though, use a different technology for solving problems, and for certain unusual uses, that method could be much faster. One of those potential uses is solving the type of problem that would derive a private key from a public one. And once someone knows your private key, they can then access or transfer your crypto.
Over 4 million Bitcoins at risk
Bitcoins are only vulnerable if the public key is known. Addresses that were used for early transactions on the blockchain are particularly susceptible to quantum computing attacks. Newer addresses are only at risk if they've been revealed during a transaction and subsequently reused.
Deloitte set out to understand the scale of the problem. Its analysis shows that more than 4 million Bitcoins (about 25% of all usable Bitcoins) could be stolen once quantum computing systems advance enough to break their encryption. Some could be transferred to safer addresses, but others are stuck in inaccessible wallets because the owners no longer have the keys.
The theft of any Bitcoins by breaking their encryption -- never mind millions of them -- would undermine confidence in the coins and could have a serious impact on their price. Moreover, a security vulnerability of this magnitude could compromise (if not destroy) Bitcoin's potential use cases.
Image source: Getty Images.
Quantum computing is advancing fast
Having understood the scale of the problem, the next question is how quickly quantum computing is developing. Here, too, there's cause for concern. A recent blog post from Google revealed that the number of qubits -- basic units of quantum computing -- required to break the widely used 2,048-bit RSA encryption protocol has been shrinking quickly.
In 2012, the post notes, it would have taken 1 billion qubits. By 2019, 20 million qubits. This year, it's down to 1 million qubits.
In sum, cracking that hard encryption today could be done with a machine 1,000 times less powerful than it would have taken 13 years ago. Even so, 1 million qubits is a lot. Scientists are moving quickly, but they are still a long way from building a machine of that scope that can stay stable long enough to perform the required calculations.
Crypto community needs to act
Quantum computing is not going to break the cryptography protecting people's crypto wallets today. However, the day when it will be able to is closer than many choose to admit. The Bitcoin community is starting to discuss how to prepare, but implementation of any response will take time.
For example, researchers at the University of Kent say that upgrading to post-quantum cryptosystems could take 75 days of downtime -- or over 300 days if the Bitcoin network operated at 75% capacity. The community would also need to reach a consensus about how to handle the old and abandoned Bitcoins that cannot be transferred to safe addresses.
What the quantum threat means for investors
If you are a holder of Bitcoin, it's important to understand the nature of this problem and to ensure that your Bitcoin is in a secure address. More broadly, you should consider how this looming threat impacts your investment thesis. If you invested in Bitcoin because you saw potential in its secure, decentralized transactions, the threat from quantum computing could undermine your rationale.
Some cryptos, such as Solana (SOL -2.66%), are actively pursuing post-quantum security. And some newer crypto projects already boast about their protocols' resistance to quantum computing attacks. However, buying smaller altcoins comes with its own risks. Frankly, in a worst-case scenario where millions of hacked Bitcoins flood the market, it is hard to imagine how even quantum-resistant projects would avoid getting washed away in the chaos.
