Shifting Landscape of Crypto Investment
Banks have shown increasing interest in cryptocurrency over the past year, with several major institutions suggesting clients explore modest crypto allocations. However, as cryptocurrency moves closer to the mainstream financial system, security concerns are re-emerging as a significant factor in portfolio strategy.
The long-term theoretical threat posed by quantum computing has prompted one of the market's most closely watched strategists to reconsider his position on Bitcoin.
The Looming Threat of Quantum Computing to Bitcoin's Security
Blockchain analytics firm Chainalysis issued a warning in a report published on November 19th. They indicated that within the next 10 to 15 years, quantum computers with sufficient power to break Bitcoin's elliptic curve cryptography could become a reality.
This assessment follows significant advancements in quantum research. Recent demonstrations by Google have showcased quantum processors executing calculations thousands of times faster than classical supercomputers. While these machines are currently far from posing a threat to blockchain networks, analysts suggest the pace of improvement is accelerating more rapidly than initially anticipated.
Bitcoin and Ethereum utilize widely adopted cryptographic standards, specifically ECDSA for digital signatures and SHA-256 or Keccak-256 for hashing. These standards are considered secure against conventional attacks.
However, Shor's algorithm, developed by mathematician Peter Shor, theoretically enables an advanced quantum computer to derive private keys from exposed public keys. This risk is particularly pertinent to early Bitcoin addresses, such as Pay-to-Public-Key wallets, which collectively hold substantial value in BTC.
Security researchers emphasize that executing a quantum attack on Bitcoin would necessitate millions of stable qubits, a capability far beyond the current state of error-prone quantum systems. Nevertheless, the "harvest now, decrypt later" threat persists: adversaries could potentially capture public-key data today and decrypt it years later once quantum hardware has sufficiently matured.
Analyst Divests Bitcoin Due to Quantum Risk Concerns
Christopher Wood, global head of equity strategy at Jefferies, recently removed Bitcoin from his model portfolio. His decision was driven by concerns that quantum computing could undermine the asset's long-term viability as an investment.
According to Bloomberg, in the latest edition of his newsletter, Greed & Fear, Wood stated that advancements in quantum technology weaken the argument for Bitcoin to reliably function as a store of value, especially for long-term investors with a pension-like outlook.
"There is growing concern in the Bitcoin community that quantum computing could only be a few years away rather than a decade or more," Wood wrote.
Wood was an early institutional advocate for Bitcoin, adding it to his model portfolio in December 2020. This move coincided with pandemic-era stimulus measures that heightened fears of currency debasement. He later increased his allocation to 10%.