Most governments like Bitcoin (CRYPTO:BTC) as much as we like walking with rocks in our shoes. Recent ransomware attacks, where hackers targeted vulnerable infrastructure such as gas pipelines and demanded ransom in the form of Bitcoin, add yet more scrutiny of the cryptocurrency. There's also plenty of regulatory scrutiny of the use of Bitcoin for illicit activities and money laundering. What's more, the energy use of Bitcoin mining has spiraled out of control in recent years and poses a direct threat to climate change initiatives.
The rise of quantum computing may soon give governments a means to crack down on Bitcoin and other types of cryptocurrencies. Information encoded in super "quantum" computers, known as qubits, exists in infinite states due to something called superposition, as there are infinite decimal numbers between 0 and 1, significantly enhancing their speed over binary computer systems. Governments could potentially decrypt digital currencies or launch hash attacks to take over their network for a regulatory shutdown with these machines. Let's analyze this risk in detail.
Image source: Getty Images.
Bitcoin cryptography in two minutes
Before we understand Bitcoin's quantum vulnerability to government oversight, we must first understand how the network operates. Consider this first basic analogy for the encryption of digital currencies: Draw two points on a circle and label them A and B. Next, draw a series of intermediate points on the circle (C, D, E, etc.) and connect a line through all such points from A to B. Points A and B are visual representations of the public key to one's wallet address while the number of steps it took to get from A to B are representations one's private key. To an outside observer, there are near-infinite paths one can take from A to B, and it would take until the end of the time to guess the correct pathway with regular computers. Bitcoin's cryptography is similar, except it uses elliptical curves, which are more difficult to crack, in a process called the Elliptic Curve Digital Signature Algorithm (ECDSA) to secure one's wallets.
Next, consider this analogy to understand hash attack vulnerability: Try opening a three-digit combination lock without knowing the passcode (no bolt cutters allowed). The puzzle itself (known as SHA-256) isn't complex at all, but it takes a lot of tries to figure out the right combination. It's similar to miners verifying Bitcoin's obfuscated transactions, except the network uses a secure process to ensure they're uncompromised. What's different is that the difficulty is variable and can get to ridiculously large numbers.
The looming quantum invasion
Let's go back to the two examples. Cracking both ECDSA or SHA-256 is straightforward but repetitive: someone guesses a possible pathway or combination, attempts it, and it's either right or wrong. But imagine being able to map out all the possible solutions to the combination lock and then attempting them all at once. That's what a quantum computer is able to do.
Keep in mind that it takes a 5,000 qubit quantum computer to penetrate Bitcoin's encryption and solve for private keys. Right now, the most advanced quantum computers can only reach 66 qubits as their quantum states are very difficult to control. So the thought of any government's quantum computers decrypting your crypto wallets should be the least of your worries for at least the next 100 years or so.
Should I be concerned?
Fortunately, cryptography is a field that overwhelmingly favors the defender and not the attacker. The quantum computing fear and uncertainty is pretty far away given its slow development and the Bitcoin network's capacity to evolve to resist attacks, such as with encryption upgrades. Remember there are other priorities governments may want to use their quantum computers for, as many hacking and ransomware incidents happen beyond the world of Bitcoin still.
However, the same cannot be said for other, less securely developed altcoins with far lower network hash rates than Bitcoin. It would mean that even a less sophisticated quantum computer can launch 51% hash attacks (meaning they need only control 51% of the network mining power) against them. In the end, don't be surprised if the U.S. Securities and Exchange Commission gets its hands on one and uses it to start shutting some of the regulatory delinquent cryptocurrencies down sooner rather than later.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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