Fidelity warns: Bitcoin private keys face quantum computing risks

TLDR

Fidelity Digital Assets released a research report on September 1, analyzing the potential risks of Bitcoin in the face of future quantum computers. In theory, a quantum computer can use Shore's algorithm to derive the private key from the public key. To this end, the researchers have proposed a quantum-resistant signature scheme called SHRINCS, which uses hash-based signature technology to replace the existing elliptic curve cryptography. However, this quantum-resistant signature is larger and may reduce transaction throughput and increase costs. Previously, Fidelity and eight other companies co-funded a multi-month,$15 million Bitcoin security initiative.

How current Bitcoin signatures work

A report released on September 1 by Fidelity Digital Assets explores the possible impact of quantum computers on Bitcoin in the future. The report focuses on private keys, which give users control over the bitcoins they hold. Although there is currently no quantum computer capable of cracking current encryption technology, researchers say the technology may eventually catch up to this level.

Fidelity's team pointed out that any solution must focus primarily on transaction throughput issues. They note that since the Bitcoin mempool is currently almost empty, the impact may be small at the moment.

Private keys allow Bitcoin owners to approve transactions without relying on banks or other intermediaries. The wallet uses the private key to create a digital signature to prove ownership. This signature does not reveal the actual private key. This mechanism forms the infrastructure for people to hold and transfer Bitcoin today.

Existing signature types and their vulnerabilities

Most Bitcoin transactions rely on the Elliptic Curve Digital Signature Algorithm (ECDSA) or Schnorr signatures. Since the activation of the Taproot upgrade in 2021, Schnorr signatures have become available. Taproot's rules stem from a proposal first proposed in January 2020. Both signature types rely on a mathematical problem that is difficult to solve for regular computers.

However, a powerful quantum computer running Shore's algorithm can solve this problem. This would allow quantum computers to deduce backwards from the public key and find the private key. Some studies have lowered estimates of the resources required for quantum attacks, prompting the industry to pay more attention to Bitcoin's long-term security planning.

A possible anti-quantum repair solution

Researchers are exploring signature systems based on hash functions rather than elliptic curves. One such proposal, called SHRINCS, combines small state signatures with larger backup options.

According to the current draft, SHRINCS sets up a 48-byte public key. Its state signature sizes range from 548 to 4,619 bytes, while stateless backups are as high as 5,777 bytes. The status method requires the device to track which one-time keys have been used. If this tracking data is lost, the path may not be used safely.

The stateless fallback mechanism avoids this problem by adopting the SLH-DSA standard released by the National Institute of Standards and Technology (NIST) in August 2024. It maintains access, but takes up much more space on the blockchain.

Researchers at Fidelity said that SHRINCS is just one of many options currently being studied. They added that Bitcoin's technical limitations could still shape the system ultimately built. A larger signature means that more data needs to be transmitted per transaction. When the network is busy, this can increase fees and slow down transaction confirmation.

Implementation challenges and industry collaboration

Putting systems like SHRINCS into use requires new consensus rules. This may be achieved through backward compatible soft forks. For this change to take effect, wallet manufacturers, miners, exchanges and node operators all need to provide support. This cross-industry coordination takes time.

In July this year, Fidelity teamed up with eight other financial and cryptocurrency companies to jointly fund a $15 million Bitcoin security initiative. The project includes research on quantum-resistant solutions for networks.