Welcome to the Friday mailbag edition of The Daily Cut.
It’s a double-barreled dispatch today…
Two of Legacy’s most widely followed analysts – Teeka Tiwari and Jeff Brown – answer a vexing question that’s been top of your fellow readers’ minds.
Will the next generation of supercomputers – aka quantum computers – allow hackers to hijack the blockchain?
Then, be sure to stay with us to the end of today’s dispatch. I (Chris Lowe) tackle a question about whether the feds will target folks who own gold and bitcoin.
But first, back to quantum computing and what it means for blockchain technology.
As you’ll know if you’ve been following along with the Cut this week, blockchain is the decentralized ledger technology that powers bitcoin and other cryptos.
And as we’ve been showing you, it’s about to kick off an economic renaissance in America.
But some of you worry quantum computers will kill blockchain tech…
Without getting too technical, quantum computers can perform calculations based on the laws of quantum physics.
This allows them to process exponentially more data than digital computers… and potentially crack even the most sophisticated encryption.
If hackers – or even governments – can crack the blockchain’s cryptography using quantum computers… what then for bitcoin and other cryptos?
It’s a question that keeps popping up in the Legacy mailbag. That’s why we reached out to two of the most respected voices in tech investing – Teeka Tiwari and Jeff Brown…
Reader question: Teeka, Honeywell has announced a functioning quantum computer that may be able to hijack bitcoin and control the blockchain in a couple of years. How do you assess this risk, and how do you think it will affect the crypto markets?
– Richard R.
Teeka’s answer: Thanks for your message, Richard.
Quantum computing allows for simultaneous calculations. By contrast, digital computers are linear, meaning they can process only one calculation at once.
When you can have multiple calculations happening at once, you can do many more calculations. If you can do more calculations, you have a much more powerful computer.
So the fear is: What happens when quantum computers get powerful enough to the point where they can do all the calculations necessary to break current encryption?
This is a valid concern, and it’s a huge one.
But what’s odd is that the community most worried about the quantum threat is the bitcoin and blockchain community. I’ve gotten endless emails asking, “Will quantum computing break the blockchain?”
Friends, let me be very clear with you: Once quantum computers get powerful enough to break blockchain encryption – and the best guess is that’s many years away – they will be able to break any encryption.
That includes the encryption used by the Federal Reserve, any brokerage firm, the Depository Trust Company (which records who owns what stocks)… and any online database that holds titles to assets such as real estate.
They ALL use encryption that quantum computers could, someday, break in an instant.
So I am more concerned about the impact of quantum computing on traditional assets. Because there’s much more money in traditional assets than there is in cryptocurrency.
But let’s say quantum computing has gotten to the point where it can break encryption. If you’re a bad actor, do you go after the crypto market, where value depends on its unassailable security?
Well, if you break unassailable security, you collapse the value of the asset. It’s not a smart use of your digital “skeleton key.” As soon as you break the lock, the assets you’re after will lose their value. It’s like stealing a piece of treasure… and as soon as you walk out of the treasure chamber, it turns to sand.
But if you use your skeleton key to hack into the Federal Reserve, steal $100 billion, transfer it someplace else, and convert it into cash… well, you can run away with that money. It’s not going to dissolve into nothing just because you violated the security of the Federal Reserve.
In fact, the Fed has already been hacked this way. In 2016, hackers stole something like $81 million from the Central Bank of Bangladesh via the New York Fed. But you didn’t see the U.S. dollar crash in value.
It’s important to be concerned about quantum computing. But you should be more worried about its threat to traditional financial assets than to crypto.
Some blockchain developers are already taking steps to create quantum-resistant algorithms in their blockchains. And as technology improves, security improves, too.
Do you think the custodians of global capital are going to stand by and let quantum computing get to the point where it can make their encryption worthless?
No. They’re going to create quantum-resistant encryption. This is why, in the pantheon of concerns that you can freak out about and lose sleep over, you should shift this one all the way over to, “What happens if I walk out of my house tomorrow and a meteor kills me?” level.
It’s possible. But it’s highly unlikely. I think you’ve got more of a chance of an IRS audit than you do of getting hit with a meteor.
Reader question: Jeff, thanks for the great news you share about quantum computers. Just wondering where that leaves cryptos, if anything encrypted can now potentially be “broken into” so easily!
– Cassandra A.
Jeff’s answer: Thanks for writing in, Cassandra. It’s a great question.
To get everyone up to speed, last September, I told my readers that the age of quantum supremacy had arrived. That’s the point at which a quantum computer can outperform the most powerful classical supercomputer on earth.
Google ran tests on its 53-qubit quantum computer. Researchers gave the quantum computer a task that would take the world’s most powerful supercomputer at the time, Summit, 10,000 years to complete.
The quantum computer finished it in 200 seconds…
We’ll recall this moment in history as the point where “it” happened. Quantum supremacy will change everything.
To start, we need to rethink everything we think we know about cybersecurity.
For several decades, 256-bit encryption was considered “military-grade.” We don’t have to worry too much about the technical details. Just know that this type of encryption was considered the gold standard.
Now, to be clear, a 53-qubit quantum computer – like the one Google has – can crack 256-bit encryption. It will take some time – perhaps a few days – but it can do it.
But guess what happens once there is a 256-qubit quantum computer? It can crack 256-bit encryption in seconds. Game over.
And now that Google has a functioning quantum computer, it’s not a big leap to get from 53 qubits to 256 qubits. We will have a massive problem on our hands very soon. I can tell you that the cybersecurity industry is scrambling right now to counter this.
I can also tell you that the National Institute of Standards and Technology, a division of the U.S. Department of Commerce, is already working on the next generation of encryption technology… something that will be quantum-resistant.
And that’s not the only division of the government that’s already trying to tackle this problem.
So to your question, Cassandra, yes, quantum computers also pose a threat to “cracking” a blockchain.
But there’s an important thing to remember about blockchain. It’s software. Like all software, it can be upgraded.
As Teeka says, there are private blockchain technology companies working on solutions to make blockchains “quantum-proof.” One example is a blockchain project called Quantum Resistant Ledger. It has developed its blockchain technology from the ground up to be quantum-resistant.
There’s not a moment to lose. Whether you’re a government or a private company, if you have data or systems that must be protected, it’s critical to be thinking about and developing systems that are resistant to quantum computing threats.
The age of quantum supremacy has arrived. Everything will change from here.
As a final note, I talked in depth about quantum computing when I was a guest on Glenn Beck’s podcast last November. Glenn is one of the few people who understand the implications of quantum computing. It was a pleasure speaking with him. You can catch the full interview right here.
To wrap up, we turn to a reader who fears that gold and bitcoin could make him a target for the feds…
Reader question: Help me out… I have an overarching conspiracy fear that the U.S. government will impose a form of financial death (and/or actual death) on anyone who transacts in gold or bitcoin.
Governments must survive at all costs and will do unthinkable things to do so. How can this not be true now when it has been true for all time? Any thoughts?
– John W.
Chris’ answer: Thanks for your message, John. If you’re a regular reader, you’ll know we’ve been yelling ourselves hoarse about “FedCoin.”
That’s what we’ve been calling the coming digital-only U.S. dollar. It will replace the dollar bills in your pocket. And it will toll the death knell for your financial independence.
I’m not sure gold and bitcoin are big enough targets right now for the feds.
But with all dollars being digital, they’ll be able to monitor, track, and record every transaction you make… and make the financial system fully part of the Surveillance State we’ve been warning you about for years.
And if you step out of line, the feds could immobilize your account with a keystroke. Here’s Legacy cofounder Bill Bonner with more…
Wouldn’t it be nice for the Deep State if all your financial information… and the control of your money… were directly in its hands?
In Margaret Atwood’s dystopian novel The Handmaid’s Tale, a future U.S. has turned into a police state. The authorities control people with electronic money cards. Like rats in a cage, people get their rations… until the watchdogs cut them off.
If the government controls every aspect of the money system, this could be the real future, not just fiction.
That’s all for this week’s edition of The Daily Cut mailbag. We’ll be back next Friday with more of your questions and our answers.
Do you worry about quantum computing killing bitcoin? Is John W. right to worry about the feds coming after your gold and bitcoin? Write us at [email protected].
Regards,
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Chris Lowe
August 14, 2020
Bray, Ireland