Bitcoin's Scariest Risk Just Became More Likely to Happen. Should You Sell It?

One of Bitcoin's (CRYPTO: BTC) very few existential risks is suddenly looming a lot closer. On March 30, Google Research's Quantum AI division published a whitepaper arguing that the encryption protecting Bitcoin and virtually every other major cryptocurrency on the market today can be broken with a dramatically less complex quantum computer than what was previously believed.

That doesn't mean that someone can steal your coins tomorrow, but it does mean that the risk posed by quantum computers could be arriving a lot faster than nearly all investors assumed, so anyone holding the asset needs to understand what just changed. Some might even want to consider selling it. Here's what's going on and why.

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What the new paper says, and why it matters

One of Bitcoin's most fundamental properties is that it provisions for ownership.

If you control a specific wallet and you don't share any information about it with anyone else, you can be confident that the coins contained within will remain under your control, provided that you don't make any security errors. The blockchain's encryption scheme ensures that nobody else can pretend to be you or otherwise gain the ability to sell or transfer your holdings. If that suddenly changes, it's reasonable to expect the coin's price to crater, perhaps permanently.

That encryption is itself based on complicated math problems, which are prohibitively time-consuming to solve (crack) with normal computers like the ones we use every day. But sufficiently powerful quantum computers running a complicated math problem-solving algorithm called Shor's algorithm could eventually crack the encryption quite quickly.

Such quantum computers do not exist as of yet, though significantly simpler ones do. The gist of the situation is that cracking encryption efficiently with a quantum device requires the device to have a significantly larger number of physical qubits (which are similar to the bits in traditional computers) than what is currently doable. So, until now, it was fairly reasonable to calculate that the encryption-breaking risk posed by quantum computers wouldn't pose an actual threat for approximately 10 years (give or take a few years), as the technology would need to advance a lot before codebreaking would become feasible.

What Google's researchers just demonstrated is the existence of optimized quantum circuits that could crack Bitcoin's encryption within minutes if run on the right quantum machine -- a machine that, with their proposed optimizations, they estimate would need to be 20X less sophisticated than prior estimates had found in terms of the number of physical qubits needed. In other words, they showed that a lot less progress in quantum computing will be needed to crack Bitcoin's encryption than was previously assumed.

That means the risk the technology poses to the coin's holders is now higher than ever.

Don't sell, but plan to pay attention

Despite the new findings and the compressed risk timelines they bring, there's not any reason to panic and sell your Bitcoin.

The developer community is already taking action, albeit slowly. A new Bitcoin Improvement Proposal (BIP) called BIP-360 was merged into Bitcoin's official proposal repository in February, marking the start of formal discussion and evaluations relating to adapting the chain with quantum-resistant cryptography.

The problem is time. BIP-360 co-author Ethan Heilman estimates that a full migration to quantum-resistant cryptography for Bitcoin could take about seven years. If the window for quantum threats just shrank from a comfortable decade to perhaps five to seven years -- and it could potentially shrink again -- the margin for deliberation and implementation is now getting uncomfortably thin.

None of this means you should sell. The incentives for a successful transition are overwhelming, and trillions of dollars in value around the world depend on it getting done.

But investors should be honest about time horizons. If you plan to hold Bitcoin as a long-term investment for a decade or more and you already have a diversified portfolio, this risk is manageable, and protocol upgrades will almost certainly arrive before any quantum machine can exploit the vulnerability.

If you need the money within five years, this new paper is a reason to temper your allocation. The upgrade timeline and the threat timeline are converging in a way that introduces uncertainty, which will likely eventually depress the coin's price.

In general, keep buying and holding Bitcoin. Most importantly, keep watching, because the next few years of development time will determine whether this coin's cryptographic foundations get rebuilt in time to avert disaster.

Alex Carchidi has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.