When markets panic, rumors tend to fly. In Bitcoin’s (CRYPTO: BTC) case, one of the more absurd narratives during the difficult Feb. 5 sell off was a speculation that a quantum computer would soon crack the network’s cryptography, enabling mass theft of coins.
That story feels practically tailor-made to trigger a stampede for the exit, and, for a moment, it appeared to have done exactly that for at least one large holder. But let’s slow down and look at what would need to be true for this claim to hold up, and characterize the true nature of this potential threat.
If you have any plans to hold Bitcoin for the long run, this is information you will need to know if you want to stay cool headed during the next inevitable patch of turbulence.
It’s true that Bitcoin’s price slide of nearly 17% between Feb. 4 and Feb. 6 looked incredibly ugly, but it seems to have been caused by a combination of unpredictable deleveraging, forced liquidations, and institutional outflows from Bitcoin exchange-traded funds (ETFs) rather than something more sinister.
Nonetheless, on top of the frightening backdrop of the sell off, there was enough tinder for a separate narrative to take off, given a spark. The spark was the reporting of a single large sale, purportedly of roughly $9 billion, which was incorrectly linked in online chatter about quantum computing fears, or even a breach of the blockchain’s cryptography. Ultimately, the reasons for that sale were found to be benign, and unrelated to the sell off, but that didn’t stop the speculation from spreading.
If, during a market sell off, you saw a handful of people on social media melting down about how the entire value of an asset you own was now on its way toward $0 as a result of a hack that sounds like it’s from a sci-fi novel, how would you respond? If you’re naturally skeptical, that’s great, but remember that during a crisis, things that you would be able to think through and dismiss in calmer times can sometimes still manage to get the better of your mental defenses.
Modern quantum computers are nowhere near powerful enough to crack the digital signatures used in Bitcoin and other leading cryptocurrencies, nor can they be used to influence mining. What’s more, the quantum computers that exist today are large, expensive to build, logistically complicated to operate, and not very useful for any practical purposes. As a result, they’re almost never found outside of government agencies, big tech companies, and university laboratories.
So don’t believe everything you read, and don’t jump to sell your Bitcoin just because other investors are panicking publicly.
Realistically, Bitcoin does actually have a long-term quantum computing risk, and it’s one of the very few existential threats facing the asset at this time.
If the chain is not upgraded to counter that risk during the next handful of years, eventually there will be sufficiently powerful quantum computers that might be able to hack it and steal people’s coins in the way that the rumor mill described. That doesn’t guarantee it will actually happen, nor is it presently reasonable to expect a problem to occur in the next five years or so, but it’s not something to brush off.
In fact, there’s also a chance that the process of upgrading (or failing to upgrade) the cryptocurrency to be resistant to quantum attacks will badly damage its value if it’s done incorrectly. Bitcoin is developed by many different people, some of whom are anonymous, and as a group they will need to form something close to a consensus in order to make guarding against the quantum threat into a priority that actually gets worked on. And historically, despite their reputation for technical competence, they’re also generally known as a cantankerous bunch. Their odds of charting a smooth course for the coin in the near term are a bit sketchy, though I’m still betting that they will eventually implement everything that needs to be done to prevent the risk of theft.
So what should a long-term investor do with this information?
Treat quantum computing like you treat any other tail risk. Plan for it in your calculations about how much risk you’re willing to take with this asset, and refuse to let fear hijack your time horizon.
