What will happen when quantum computers become a reality?
One of my favorite moments at a cryptocurrency seminar last year was when someone asked this question. The answer was dead silence. After a long pause, the speaker said something like, “We’ll figure it out when we get there.”
Let me explain.
The whole premise of blockchain technology and cryptocurrencies, non-fungible tokens (NFTs) and the smart contracts built upon it, is that distributed ledgers are highly secure and cannot be hacked by modern computers. I’m oversimplifying a bit, but for a transaction to be accepted by the blockchain, more than 50% of the computers on the network sharing the blockchain must agree that the computer claiming to be the new owner of the cryptoassets is indeed the rightful owner. And the network only accepts claims that have Proof of Work (PoW), which is essentially a massive exercise in multiplying a few very large numbers. Again, I’m simplifying here.
Once such a PoW has been sent to the blockchain network and more than 50% of computers accept it, a new block is added to the chain and the longer blockchain is considered the real blockchain. Submitting a PoW for a new cryptocurrency creates a new token or coin. Similarly, submitting a request creates a contract that confirms ownership of certain assets without relying on centralized databases or potentially corrupt government officials.
Now imagine that you can produce these PoWs faster than all the computers on the network can verify the validity of the PoW. Then you can always stay ahead of the verification process and create new blocks in the blockchain before the rest of the network can verify them. And since all blockchain technology assumes that the longest blockchain is legitimate, you can effectively “hack” the system. All other computers will simply accept your blockchain as the one against which any new PoW can be compared.
With today’s computing power, it is simply impossible to create a so-called 51% hack. But quantum computers will be so much faster that at some point they will easily outpace any network of traditional computers. In fact, speed will not be their only advantage.
Conventional computers are based on transistors that distinguish between two binary states – so-called “bits” – 0 and 1. But quantum computers can accept both 0 and 1 at the same time and superimpose these “qubits”. If this sounds strange, think of a typical old-fashioned computer that encodes letters or numbers as a series of eight bits. There are 256 different symbols or numbers that can be encoded by these eight bits, and at any given moment a transistor in a standard computer will be in one of these 256 possible states. But a quantum computer with eight qubits can take all 256 states at once and use them to compute simultaneously. Thus, the advantage of quantum computers grows exponentially as they incorporate more Qbits.
This means that the algorithms in quantum computers must be completely redesigned to take advantage of these computational capabilities. But it also means that quantum computers will be much more powerful. They will easily crack problems that traditional computers have not been able to solve for the rest of the universe’s existence.
So, suppose you are the first person or company to build a fully functioning quantum computer. Since all the world’s networks are based on ordinary computers, you can hijack every blockchain on earth in seconds. Only when the majority of computers on the network also become quantum computers will the blockchain become secure again. But by then it may be too late.
This is the advantage of quantum computers holds even if they haven’t really achieved what’s called true quantum supremacy, or when they can solve problems that no traditional computer can. Once the problem-solving ability of standard computers is sufficiently outpaced by their quantum counterparts, all the blockchains in the world will be hackable by anyone with a quantum computer.
Therefore, if quantum computers become a reality, blockchain technology will have to be completely rebuilt from the ground up, or it will lose all the benefits of decentralization and security.
But quantum computers are still just science fiction, right? Yes. But they are currently being developed. And if you extrapolate current achievements at future computing power rates based on Moore’s Law, a single quantum computer will be able to crack the Bitcoin blockchain by around 2045.
Quantum computer vs bitcoin hash rate
And this estimate is based on two assumptions: first, that quantum computing is developing at the same rate as traditional computing. However, we know that new technologies tend to evolve much faster than well-established ones. Second, the date 2045 refers to the Bitcoin blockchain, which is currently the most complex and computationally demanding. (This is why bitcoin cannot compete as a payment system with the PayPals and credit card networks of the world). Other blockchains, such as Ether, or those underlying commercial applications, use much smaller networks. And according to a new study of the benefits of quantum computing, quantum computers may crack such blockchains as early as 2023.
Personally, I don’t think 2023 is realistic. But the more I read about advances in quantum computing, the more I believe it could be sometime this decade. And what happens then?
Unless all blockchain applications are fundamentally redesigned in advance, they are likely to become insecure and useless.
To learn more from Joachim Clement, CFA, don’t miss out Risk profiling and tolerance and 7 Mistakes Every Investor Makes (And How To Avoid Them) and subscribe to his regular comments at Clement about investments.
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All posts are the opinion of the author. As such, they should not be construed as investment advice, and the opinions expressed do not necessarily reflect the views of CFA Institute or the author’s employer.
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