Crypto’s Uphill Battle: Pt.2
Good Monday, everyone!
Markets continue to be shaky, as the Ukraine-Russia conflict keeps causing uncertainty and chaos. I’ve briefly touched upon the situation last week and won’t talk about it here any more. I hope you and your family are well.
With that out of the way, I’m writing about something I’ve been excited about for weeks now: the development of quantum computing and the resulting threat to blockchain technology. In my last edition of Crypto’s Uphill Battle, I mentioned a few remaining challenges before cryptocurrencies will be widely adopted, including extreme volatility, environmental impact, political pushback, and key person risk (i.e. Elon tweeting sh!t about dogecoin and having influence on markets). If you missed Crypto’s Uphill Battle Part 1, check it out here. While mentioned challenges are current, observable, and measurable, the arguably biggest threat to blockchain technology is yet to come to life: quantum computing.
What is Quantum Computing?
’Normal’ computers are binary, meaning they store and process data in ‘0’s OR ‘1’s. Quantum computers, on the other hand, process and store data as ‘1’s AND ‘0’s in various mixes, which opens up numerous new possibilities of processing and storing data, compared to computers today. Whether quantum computers are faster and more efficient than today’s computers in every single aspect is uncertain. However, quantum computers are thought to be superior when attempting to solve complex problems with many possible answers/solutions. Whereas today’s computers check possible answers one by one (i.e. if answer = wrong, try another answer until answer = correct), quantum computers are able to check multiple answers at the same time.
Why is Quantum Computing a Threat to Blockchain Technology?
Long story short, blockchain technology is based on Cryptography: each transaction is recorded on the blockchain using encrypted data. This data is encrypted using a public key and can be decrypted using a private key — ideally only the person who is supposed to have access to a bit of data, holds both the public and private key to a specific string of information. Data on the blockchain is currently encrypted in a way that traditional computers aren’t able to crack without both keys. The emergence of quantum computers however might change this, as quantum computers may be particularly well suited to crack encrypted complicated strings and passwords. This would allow quantum computers to gain access to sets of data without holding both its public and private keys — essentially breaching the entire security of blockchain technology.
How F**ed Are We?
Hudson Institution’s Quantum Alliance Iniative conducted a joint study with the econometric firm Oxford Economics to calculate just how much cryptocurrencies could lose in value as a direct result of quantum computing attacks. Their answer essentially goes something like Yeah, we’re pretty f***ed. Apparently, as of today, quantum attacks would be able to cause a 99.2% collapse of value, inflicting a total immediate loss of nearly $1.5 trillion. That is about 1/20th of the US’s total Gross Domesstic Product. Seeing this would ‘only’ be an immediate loss as a direct result of quantum computing, a global economic collapse would likely follow due to indirect results. The aftermath of such an event would most likely see a loss in multiple trillions of dollars, cost millions of jobs, and push millions of people into poverty… Great. Even better: quantum computers are expected to emerge on a larger scale by the end of the century. By then, cryptocurrencies will be even more embedded in the global financial system than they are today — amplifying the magnitude of consequences to an even more catastrophic level.
Breaching the cryptographic system as we know will result in a super meltdown for all blockchain technologies: An impact of this magnitude (or even its realistic threat) would make all blockchain-based technology cease to exist.
Post-quantum Cryptography
A direct answer to the threat of quantum computing could be post-quantum cryptograhy, i.e. quantum-computer powered encryption. Cryptography today is essentially based on functions that are easy to calculate in one direction, but incredibly difficult to engineer the other way around. In other words, given x it easy is to find f(x)=y, but given y it is difficult to find x. Quantum computers would encrypt data using more complex algorithms, which are far more difficult to crack even with the use of quantum computers.
Zero-knowledge Proof
Another potential solution to the threat of quantum computing is zero-knowledge proof, one of the biggest transformations currently underway in cryptography. The main idea behind zero-knowledge proof is that data can be validated without the underlying information being disclosed. In terms of blockchain technology, this would mean that transactions can be validated by nodes without the underlying information being encrypted and passed on — essentially removing or altering any data to be de-crypted by quantum computers in the first place. Zero-knowledge proof essentialy separates data verification from the underlying data itself. If this doesn’t make any sense, I found below explanation by our boi “FawkesHeart” super useful.
The fortune teller essentially validated a string of information (i.e. the color that the person was thinking of) by validating a completely different string of information, detached from the original information. Wow, what a way to explain zero-knowledge proof. This guy fawkes.
The Takeaway
The development of quantum computing may pose a legitimate threat to blockchain technology. To what extent? We’ll have to see.
Thankfully we already have at least two solutions that could dampen or even remove this threat. Unfortunately, I am technically not sophisticated enough to argue whether a combination of zero-knowledge proof and post-quantum encryption would be possible, even necessary, or able to further strengthen the security of blockchain technology (from my understanding, zero-knowledge proof may remove the necessity for a more sophisticated encryption tool altogether?). Do not hesitate to comment or reach out if you have any thoughts on this, I’d love to hear your perspective!
That’s it for today. Thank you for reading & see you next Monday.
Take care,
Team Lithium x Seb
