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The rise of the Digital Currency: Bitcoin and its future head-on with Quantum Computing
20 Oct, 2020/ 09:25 AM Computing

Cryptocurrencies have seen a major breakthrough in the financial, business and inter-organisational sectors from the last 5-6 years. Over 1500 cryptocurrencies are being circulated in the market currently among which the Bitcoin is the most widely used. These cryptocurrencies can be defined as a decentralized medium of peer to peer digital transaction system which is secured by complex cryptographical algorithms. The underlying technology behind these is the blockchain technology that relies on a series of transaction blocks added one after the other in the form of a sequence or chain.

Evolution of Bitcoin

The earliest evidence of this technological revolution dates back even before the introduction of the Bitcoin with the development of digital monetary systems and e-cash. Chaum and Brands were the earliest individuals to have developed protocols for issuer based ecash in 1983. Haber and W Scott Stornetta then put forward an idea of a ‘Cryptographically secured chain of blocks’ in their paper in 1991 followed by Adam Back in 1997 who developed a ‘proof of work’ schemed spam control mechanism called Hashcash. The Hashcash system was soon further modified into a ‘reusable proof-of-work’ by Hal Finney in 1997. Computer scientist Nick Szabo in 1998 then worked on a fully decentralized cryptocurrency called ‘Bit Gold’. With all of these innovators in the field of digital currency laying down the foundation, Bitcoin was finally introduced in the year 2009 under a pseudonym Satoshi Nakamoto.

Pseudonym Satoshi Nakamoto hanged on for a couple of more years when the software platform for Bitcoin transaction named ‘Bitcoin Client’ was released which facilitated him/them to mine the first ever blocks of bitcoin (genesis block) with a reward of 50 bitcoins. The ‘bitcoin client’ was then downloaded by Hal Finney to establish the first ever peer to peer transaction system and receiving 10 bitcoins from Nakamoto. Nakamoto then quickly disappeared after mining for himself an amount of 1 million bitcoins in 2011. The first ever corporation named ‘Bitcoin Foundation’ was established with Gary Anderson as its lead developer who became the ‘public face’ of the bitcoin.

Nakamoto’s bitcoin design

Nakamoto termed the bitcoin as “A chain of digital signature” in his paper consisting of a chain of all the previous transaction records. While making a transaction from peer to peer, a digital signature of the current owner in possession of the coin which is basically a string of arbitrary length is converted into a string of fixed length, the process which is known as hashing. Along with the signature the coin must also hold the unique public key of the next owner to whom the coin is to be sent. The hashed coin is now broadcasted to the mint (a trusted central authority or the high computational power CPUs in the network in this case) for validation of the chain of ownership. In the process of validation, the received coin is time stamped, added onto the hashed record and broadcasted with the new hash. The purpose of time stamping is to set the time of the current transaction so that the owner could not double spend the coin for another transaction. The broadcasted hash can now be received by multiple nodes (Miner CPUs that stores the entire blockchain) in the network where they compete with each other for solving a complex algorithm or the Proof-of-work.

Source: Google images

The process of ‘Proof-of-work’ requires tremendous CPU effort involving a random search of the value of the hashed function that spit out a fixed number of initial zero bits in the hash, with each required bit elevating the CPU work to be done exponentially. The miner or the node that finishes the computation gets to add a new block to the blockchain with all the records of the transaction. At this stage, the added block cannot be altered without redoing the current and all other previous blocks in the chain. Few other protocols that need to be maintained include the highest preference given to the longest chain (or the greatest proof-of-work invested effort by the nodes) and higher preference to the version of the broadcasted next block that is received first. The other version is also stored and later added on to the one having the longest chain. At the end of every block validation, the miner receives incentives in the form of bitcoins for their support to the network in encouraging a node to remain honest and in maintaining circulation of the coins in the network.

After the verification of the proof-of-work by the majority network nodes, the transacted bitcoin is finally send to the next owner or the payee.

Threat to Bitcoin by quantum computing

As mentioned in the earlier section, it takes a lot of CPU effort in validating the value of the hash function that spits out the required number of initial zero bits which is termed as ‘one way math function’. Blockchain entirely depends on the security of this ‘one way function’ and is very difficult to crack in the reverse direction. Quantum computers in the next coming decade will however be able to break this security protocol effortlessly and instantly make the ‘one way encryption’ obsolete. Quantum computing relies on its fundamental concept of superposition and entanglement which pose a great threat to the security of the digital signature of the blockchain users. Mathematician Peter Shor in 1994 had already demonstrated the seriousness of this security protocol threat by breaking the cryptographic based encryption algorithm of the blockchain. The work on making quantum computers feasible have already been initiated by major tech giants like Google, IBM, Accenture, Amazon, Alibaba Group, Microsoft, Intel and others.

Quantum Encrypted Bitcoin

Apart from the threat to bitcoin security, quantum computing can also be implemented positively by encrypting all blockchain peer to peer communication networks and by using quantum encrypted signatures instead of classical digital signatures. This can be done due to inherent authenticable property of quantum communication and the physics behind that tells the indeterminable and inimitable property of its states. Information flows in a quantum communication through individual photon particles possessing a fixed quantum state that helps in encoding and decoding of bits. This strategy could also secure protocols and information transferred through any untrustworthy nodes. The challenge lies with its complexity, cost and photon losses in the optical distribution network and the solution is to distribute entangled states of the photon between the communicating parties using quantum optical memory and teleportation.

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