Blockchain

Could quantum computing make blockchain obsolete?

Could quantum computing make blockchain obsolete?

tuesday 08 march 2022 09h12

By:

CFA Institute Contributor

These are articles written by professionals for investment professionals. These are contributions from external subject matter experts who do not work for the CFA Institute, but who may be CFA charterholders as well as members of a CFA Society. All are experts in their field and strive to provide useful information that helps investment professionals make better decisions.

“What happens when quantum computers become reality?” : One of my favorite moments at a cryptocurrency seminar last year was when someone asked this question. After a long pause, the speaker said something that sounded like, “We’ll find out when we get there.”

Let me explain. The premise of blockchain technology and cryptocurrencies, non-fungible tokens (NFTs) and smart contracts derived from them is that distributed ledgers are secure and cannot be hacked with modern computers.

I’m oversimplifying but for a transaction to be accepted by the blockchain, more than 50% of the computers on the network that share the blockchain must agree that the computer claiming to be the new owner of a cryptoasset is indeed the owner legitimate. And the network only accepts claims that have proof of work (PoW), which is essentially an exercise in mass multiplication of several very large numbers. Again, I’m oversimplifying.

Once such a PoW has been submitted to the blockchain network and more than half of the computers accept it, a new block is added to the chain and the longest blockchain is considered the real blockchain. Submitting a PoW for a new cryptocurrency is what creates a new token or coin. Similarly, submitting a PoW creates a contract that proves ownership of certain assets without relying on centralized databases or potentially corrupt government officials.

Quantum computing will change the game

Now imagine that you can produce these PoWs faster than all the computers on a network can verify the PoW’s veracity. Then you could constantly override the verification process and generate new blocks in the blockchain before the rest of the network can verify them. And since all blockchain technologies assume that the longest blockchain is the legit one, you can effectively “hack” the system. All other computers would simply accept your blockchain as the one against which to compare any new PoW.

With modern computing power, it is impossible to create such a 51% hack. But quantum computers (which are based on the principles of quantum theory) 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 differentiate between two binary states — called “bits” — 0 and 1. But quantum computers can take both 0 and 1 at the same time and superimpose these “Qbits”. If that sounds strange to you, think of a typical old-fashioned computer that encodes letters or numbers as a series of eight bits. There are 256 different characters or numbers that can be encoded with these eight bits, and at any time a transistor in a standard computer will be in one of these 256 possible states. But a quantum computer with eight Qbits could take all 256 states at once and use them for calculations simultaneously. Thus, the advantage of quantum computers grows exponentially as they include more Qbits.

This means that quantum computer algorithms need to be redesigned in order to take advantage of these computational capabilities. But it also means that quantum computers will be much more powerful. They will easily solve problems that traditional computers could not solve for the remaining life of the universe.

The blockchain will have to adapt

Now let’s say you’re the first company to build a fully functional quantum computer. Since all networks in the world are based on conventional computers, you can support all blockchains on earth in seconds. Only when the majority of computers in a network also become quantum computers will blockchain be safe again. But by then, it may be too late.

This advantage of quantum computers holds even when they haven’t really achieved what’s called a true quantum advantage, or when they can solve problems that no traditional computer can solve. Once the problem-solving capability of standard computers is sufficiently surpassed by their quantum counterparts, all blockchains in the world will become hackable by anyone with a quantum computer.

So when quantum computers become a reality, blockchain technology will have to be completely recreated from scratch or lose all its advantages of decentralization and security.

But quantum computers are still just science fiction, right? Yes. But they are under development. And if you extrapolate current advances the speed of computing power in the future based on Moore’s Law, a single quantum computer will be able to hack the bitcoin blockchain by around 2045 (see graphic: a “hash rate” is a measure of the number of calculations that can be performed per second).

Quantum Computer vs. Bitcoin Hash Rate
Source: “Quantum advantage over proof of work,” by Dan A. Bard, Joseph J. Kearney and Carlos A. Perez-Delgado

The above estimate is based on two assumptions: first, that quantum computing advances at the same rate as traditional computing (we know, however, that new technologies tend to advance much faster than well-established ones) ; second, the 2045 date applies to the bitcoin blockchain, which is by far the most complex and computationally intensive.

Other blockchains, like Ether or the underlying trading applications, use much smaller networks. And according to a study on the benefits of quantum computing, quantum computers could hack these blockchains as early as 2023.

I don’t think 2023 is realistic. But the more I read about advances in quantum computing, the bigger I think it could be in this decade. And what happens then?
Unless all blockchain applications have been fundamentally redesigned beforehand, they will likely be rendered unsafe and useless.


If you liked this article, don’t forget to subscribe to the Enterprising investor.


By Joachim Clement, CFAtrustee of the CFA Institute Research Foundation and provides regular feedback to Klement on investment.

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 the CFA Institute or the author’s employer.


Image credit: ©Getty Images / ALFRED PASIEKA/SCIENTIFIC PHOTO LIBRARY