Is Blockchain Just a Transition Technology?

What happens 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 to the tune of, “We’ll figure it out when we get there.”

let me explain

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The whole premise of blockchain technology and the cryptocurrencies, non-fungible tokens (NFTs) and smart contracts based on it is that distributed ledgers are immensely secure and cannot be hacked on modern computers. I’m simplifying 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 a cryptoasset is in fact the rightful owner. And the network only accepts claims that have a Proof of Work (PoW), which is essentially an exercise in mass multiplication of several very large numbers. Again, I’m oversimplifying here.

Once this PoW has been sent to the blockchain network and accepted by more than 50% of computers, a new block is added to the chain and the longest blockchain is considered the true blockchain. Submitting a PoW for a new cryptocurrency is what creates a new token or currency. Similarly, sending a PoW creates a contract that proves 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 a network can verify the veracity of the PoW. You could then constantly bypass the verification process and generate new blocks on the blockchain before the rest of the network could verify them. And since all blockchain technology assumes that the longest blockchain is the legitimate one, you could effectively “hack” the system. All other computers would simply accept your blockchain as a comparison to any new PoW.

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With modern 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 outperform any traditional computer network. In fact, speed will not be its only advantage.

Conventional computers are based on transistors that differentiate between two binary states, called “bits”, 0 and 1. But quantum computers can assume 0 and 1 at the same time and superimpose these “Qbits”. If this sounds strange, think of a typical old 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 given 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. Therefore, the advantage of quantum computers grows exponentially as they include more Qbits.

This means that the algorithms of quantum computers must be completely 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 in the remaining lifetime of the universe.

So, suppose you are the first person or company to build a fully functional quantum computer. Since all the world’s networks are based on mainstream computers, you can take over all the blockchains on earth in a matter of seconds. Only when the majority of computers in a network also become quantum computers will the blockchain become secure again. But then it may be too late.

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

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

But quantum computers are still just science fiction, right? If they are But right now they are being developed. And if you extrapolate today’s advances in the speed of computing power into the future based on Moore’s Law, a single quantum computer will be able to hack the bitcoin blockchain by 2045.

Quantum Computer vs. Bitcoin Hash Rate

Chart showing quantum computer hash rate vs.  Bitcoin
Source: “Quantum Advantage on Proof of Work,” by Dan A. Bard, Joseph J. Kearney, and Carlos A. Perez-Delgado

And this estimate is based on two assumptions: first, that quantum computing advances at the same pace as traditional computing. We know, however, that new technologies tend to progress much faster than already established ones. Second, the 2045 date applies to the bitcoin blockchain, which is by far the most complex and computationally intensive. (This is why bitcoin cannot compete as a payment system with the PayPal and credit card networks of the world). Other blockchains like Ether or the underlying commercial applications use much smaller networks. And according to a new study on the benefits of quantum computing, quantum computers could hack these blockchains as early as 2023.

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Personally, I don’t think 2023 is realistic. But the more I read about advances in quantum computing, the more I think it could be sometime this decade. And what happens then?

Unless all blockchain applications are fundamentally redesigned ahead of time, they are likely to become insecure and unusable.

For more information from Joachim Klement, CFA, don’t miss it Risk profile and tolerance i 7 mistakes every investor makes (and how to avoid them) and subscribe to his regular comment a Klement on investment.

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All posts are the opinion of the author. Therefore, they should not be construed as investment advice, nor do the views expressed necessarily reflect the views of the CFA Institute or the author’s employer.


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Joachim Klement, CFA

Joachim Klement, CFA, is a trustee of the CFA Institute Research Foundation and provides regular commentary to Klement on investment. He was previously CIO at Wellershoff & Partners Ltd., and before that, Head of the Strategic Research Team at UBS Wealth Management and Head of Equity Strategy at UBS Wealth Management. Klement studied mathematics and physics at the Swiss Federal Institute of Technology (ETH), Zurich (Switzerland) and Madrid (Spain), graduating with a master’s degree in mathematics. In addition, he has a master’s degree in economics and finance.

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