Everyone was stunned when the new mayor of New York City Eric Adams he was planning to receive his first three paychecks in Bitcoin, the cryptocurrency that’s been dominating the financial headlines for the past year. The mayor of Miami, Francis Suarez, had already announced he would accept his first paycheck 100% in Bitcoin.
The mayoral announcements are still more signs that cryptocurrencies are no longer esoteric investments for the super-rich (or super-crooks) but have entered the financial mainstream. Back in May Bitcoin the third biggest world currency in terms of circulation. Only the euro and the U.S. dollar are bigger.
Mayor Adams himself says he intends to make New York City “the center of the cryptocurrency industry.”
Of course, the history of markets teaches us that what goes up must eventually come down—especially a commodity like crypto, whose rise has been fueled as much by media hype as by financial realities. Whether the current crypto boom turns out to be a crypto bubble, is impossible to say. What Bitcoin and other cryptocurrencies do have going for them are two virtues.
The first is that they are not state-denominated currencies, whose heads around the world have turned out to be inept or corrupt or both.
The other is cryptocurrency’s reliance on blockchain, or Distributed Ledger Technology (DLT), to protect and authenticate its transactions. The on-going ledger of cryptocurrency transactions is never stored in any single location, which means no centralized version exists for a hacker to corrupt. Since the data is hosted by millions of computers simultaneously, it’s accessible to anyone on the internet. But it’s also protected because after every transaction within the shared ledger; and once all the ledgers match for every computer in the network; the transaction is encrypted with the rest in what’s known as a block. The new block is then added to existing previous blocks to form a chain of blocks—hence the term blockchain.
All in all, blockchain is a built-in security system that prohibits a hacker or attacker from forcing open the distributed ledger without everyone knowing it.
As tech guru George Gilder argues in his book, Life After Google, using blockchain to share but also protect data poses a greater threat to Big Tech dominance of the internet than any government regulation or legislation—just as cryptocurrencies pose a useful challenge to the elites who control our state-denominated currencies.
But as always there’s a catch. Blockchain is an adequate safeguard against existing cyber threats, but not against the future one posed by large-scale quantum computers.
As I mentioned in a previous column, blockchain’s encryption is based on Elliptical Curve Cryptography, which will be vulnerable to factorization by quantum computers that can decrypt the complex algorithms used by asymmetric encryption systems to secure almost all electronic data, including blockchain. The quantum attacker will simply look like another member of the shared ledger, in a cyber assault that will be undetectable and persistent.
How vulnerable will cryptocurrencies like Bitcoin be?
Consider: in 2020 the total market cap of cryptocurrencies was $330 billion. Today it is approaching $2 trillion. Institutional investors account for 63% of trading in cryptos, compared to just 10% in 2017, which means a collapse of crypto value is bound to ripple through balance sheets all around Wall Street-and around the world.
Our most recent study conducted here at the Quantum Alliance Initiative done in conjunction with the econometric firm Oxford Economics indicates that a quantum attack on crypto precipitating a 99.2% collapse of value, would inflict $1.865 Trillion in immediate losses to owners, with nearly $1.5 trillion in indirect losses to the whole economy due to that collapse.
All in all, we are looking at a $3.3 trillion blow to the U.S. economy.
That’s a calculation based on crypto’s current value. By the time a large-scale quantum computer emerges, by 2030 or so, cryptocurrencies will be even more imbedded in the global financial system—and the losses even greater.
Fortunately, there’s a solution. The most immediate is post-quantum cryptography, i.e., deploying algorithm-based encryption that is impenetrable to future quantum attack but also to classical attack right now. Crypto exchanges have already drawn highly damaging attacks, like the one in 2018 on Bithumb, the South Korean crypto-currency exchange, which cost $30 million, or the this past August in which cyber thieves stole more than $600 million.
The National Institute for Standards and Technology (NIST) is working on standards for post-quantum cryptography for rollout starting in 2024, but there is no reason to wait. Companies in the USA and Canada can offer solutions now, including hybrid solutions that offer the best of both post-quantum and quantum-based technologies—while others are creating versions of DLT that incorporates quantum solutions from the start.
Make no mistake; regardless of Bitcoin and Ethereum’s ups and downs in the current markets—even if a Bitcoin bubble bursts—crypto currencies are here to stay. Quantum-safe solutions can make sure they are stable and secure for a long time to come.
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