Market Analysis:
This week, following the Ethereum ETF announcements last week, the cryptocurrency market has remained relatively stable as it continues to absorb and process the implications of this significant development. Ethereum itself saw a modest increase of just +0.1% on a week-to-week basis, while Bitcoin experienced a notable decline of -2.6%, along with a reduction in Bitcoin dominance. In contrast, the meme-coin sector provided some bright spots in the market, with notable gains seen in tokens such as WIF, which surged by +24.3%, FLOKI, which climbed by +23.5%, and BONK, which rose by +13.0%. Additionally, other noteworthy outperformers included Ondo, an on-chain asset platform, which saw an impressive increase of +25.9%, and Lido, an Ethereum liquid-staking protocol, which grew by +12.5%. Both Ondo and Lido are speculated to benefit significantly from the introduction of the Ethereum ETF.
Prague-Electra (Pectra) is anticipated to be the next major Ethereum upgrade, targeted for release by the first quarter of 2025. This upgrade follows the successful implementation of Dencun in March 2023, which enhanced Layer 2 scaling through Blobspace. Pectra is expected to include EIP-7251, which increases the maximum effective balance for validators, allowing them to stake up to 2,048 ETH, potentially reducing complexity but impacting Single Slot Finality. Additionally, EIP-7702, proposed by Vitalik Buterin, aims to enhance wallet functionality by temporarily converting a user's wallet into a smart contract wallet during transactions. However, this proposal is contentious due to security concerns, as it could allow a single malicious transaction to drain a user's wallet. The debate over EIP-7702 will be critical, balancing user experience improvements against potential risks.
Market Overview at the time of publication (according to coincodex):
Hello Friends,
Thank you so much for attending our Crypto and Jazz mixer on Tuesday night. We hope you had as much fun as we did! It was another exciting week during Consensus in Austin, TX. This year felt like the peak of 2021 all over again, with people from all over the world gathering in downtown Austin to discuss advancements in blockchain technology, AI, and the latest trends in quantum computing. So, let’s explore what quantum computing means and its implications for blockchain technology.
Quantum computing is revolutionizing technology, reshaping data security, and transforming applications. Some experts believe it will potentially disrupt blockchain's future. While blockchain became a hot topic during the early 2020s as crypto adoption soared, AI has since stolen the spotlight. Now, quantum computing is emerging as the next transformative technology, with the potential to significantly impact both blockchain and AI.
Updates from the world of quantum computing began making waves in late 2023. The combination of quantum computing and AI promises to redefine our entire computing infrastructure, potentially leading to innovations we can't yet imagine. But before diving into these innovations, let's start by understanding quantum mechanics.
Quantum mechanics is a fundamental theory in physics that describes the behavior of matter and energy at atomic and subatomic levels. Quantum computing leverages these principles to perform operations on data in ways classical computing cannot.
Classical computing is binary, relying on bits that are either 0 or 1. Quantum computing, however, uses quantum bits or qubits, which can exist in multiple states simultaneously. This capability exponentially increases the amount of information that can be processed, enabling quantum computers to solve complex problems much faster than classical computers.
Key Principles of Quantum Computing
Quantum computing can solve complex problems faster than traditional computers, benefiting fields like medical research and climate change. However, it also poses significant threats, particularly to cybersecurity. Quantum computers could break current cryptographic protocols, rendering today’s encryption methods obsolete and posing risks across various sectors.
This is where blockchain technology comes in, as it relies heavily on cryptography for security. Quantum computing could challenge this security by breaking cryptographic algorithms used in blockchain, particularly affecting major cryptocurrencies like Bitcoin and Ethereum. To understand the extent of this threat, we need to delve into the fundamentals of cryptography.
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A common concern is whether quantum attackers can break symmetric cryptographic algorithms like AES-128 or AES-256 (Advanced Encryption Standard). AES, when implemented correctly, is extremely secure. The last three digits (128 or 256) represent the length of the secret key – similar to the number of teeth in a physical key. From a security perspective, a 256-bit secret key is obviously stronger, making a brute force attack against an AES-256 key much harder than against an AES-128 key. However, even a 128-bit key is secure against modern technology.
To illustrate, the Bitcoin network – one of the largest modern uses of computational power for cryptography – performed approximately 150 * 10^18 ≈ 2^67 operations per second at its peak. Assuming these operations are as difficult as a brute force attack, it would take the Bitcoin network over 70 septillion (70,000,000,000,000,000,000,000,000) years to crack a single AES-128 key.
Furthermore, NIST estimates that even a quantum computer capable of breaking RSA-2048 in hours would still take an impractically long time to break AES-128. Specifically, a quantum computer would need a hundred billion years to break AES-128 using Grover's algorithm. Even with a massive cluster of quantum cores, it would still take a million years to break AES-128.
In 2011, the fastest supercomputer, Fujitsu K, with a peak speed of 10.51 petaflops, would have taken approximately one quintillion years to crack a 128-bit AES key by brute force. This is much older than the universe itself, which is about 13.75 billion years old. By 2017, the most powerful supercomputer was the Sunway TaihuLight in China, capable of 93.02 petaflops. Even this supercomputer would take around 885 quadrillion years to brute force a 128-bit AES key. For a 256-bit cipher, the number of operations required is roughly equal to the number of atoms in the universe, making brute force attacks practically impossible. Although researchers in 2011 identified a weakness in AES that allowed it to be cracked four times faster than previously possible, it would still take more than two billion years on a trillion machines testing a billion keys per second to recover an AES-128 key. To counter this, an additional four rounds were added to the AES-128 encryption process to further enhance its security.
Therefore, Grover's algorithm does not pose a significant threat to symmetric cryptography. NIST now states that AES-128 will likely remain secure for decades to come, even considering quantum advancements. This level of security is also reflected in the NIST PQC standardization efforts, which equate certain parameters with the strength of AES-128 under quantum attacks.
In summary, the currently most important symmetric cryptographic tools, such as AES, SNOW 3G, SHA-2, and SHA-3, remain secure against quantum computers. This also applies to the authentication, key generation, encryption, and integrity in 3G, 4G, and 5G networks that rely purely on symmetric cryptography.
However, quantum computing is progressing rapidly, and its mainstream adoption is not a matter of if but when. While current quantum computers are delicate and require extremely controlled environments, advancements are accelerating. IBM and UC Berkeley researchers demonstrated that even flawed quantum computers could outperform classical computers in specific tasks but they’re not powerful enough to represent a real thread to blockchain technology.
Furthermore, the blockchain community is currently developing quantum-resistant cryptographic algorithms. Organizations like NIST are working on standardizing post-quantum cryptography, but other initiatives include:
Although quantum computing poses a potential threat to the security of blockchain technology, this is not an immediate concern as the technology is not yet advanced enough to do so. Some blockchain projects are actively working on quantum-resistant algorithms, including alternative cryptographic schemes believed to be secure against quantum attacks, such as lattice-based, hash-based, and multivariate quadratic equation-based cryptography. Institutional investors, like Hyla Fund Management, are interested in supporting the development of these quantum-resistant algorithms.
Experts estimate that it may take a decade or more before quantum computers can break current cryptographic systems. This gives the blockchain community time to adapt and implement quantum-resistant solutions.
Therefore, for now, blockchain and cryptocurrencies are relatively safe from quantum attacks. However, ongoing research and development in quantum-resistant technologies are crucial for ensuring long-term security in a quantum-dominated future. We will keep track of advancements and keep you informed of new developments. We are excited about the endless possibilities that these combined technologies can bring to the world and feel honored to support the innovators through our funds.
If you would like to learn more about our investment opportunities, please send us an email at [email protected]. As always, thank you for being part of our journey and for reading Blockchain Hedge. Have a wonderful weekend!
The views expressed in this newsletter are solely those of the authors and should not be considered investment advice or recommendations. They are not intended to influence any investment decisions.
