Blockchain

Quantum Computing Threat to Blockchain Security: Expert

Published

4 months ago

23 July, 2024

Quantum computing’s threat to blockchain security: expert

Quantum computing, once a theoretical concept, is now rapidly advancing and reshaping our understanding of data processing.

Unlike traditional computers that use bits, quantum machines use qubits, which can exist in multiple states at once. This makes them significantly more efficient than traditional computing systems when tackling complex problems.

For the blockchain sector, the rise of quantum technology poses a significant threat to cryptographic systems that underpin the security of the blockchain. Current cryptographic methods, such as Rivest-Shamir-Adleman (RSA) and Elliptic-Curve Cryptography (ECC), are widely used in networks such as Bitcoin AND Ethereal.

Their main strength lies in their complexity, which traditional systems cannot decipher. Yet quantum machines they claim they can break these systemspotentially making these networks vulnerable to attacks once thought unlikely.

With the entire industry including cryptocurrencies, non-fungible tokens (NFTs) and decentralized applications (DApps) at risk, quantum-resistant cryptographic measures are urgently needed. While slowly moving towards the post-quantum erathe blockchain industry must innovate and adapt.

To shed some light on these issues, Lisa Loud, executive director of the Secret Network Foundation and chair of the IEEE SA Quantum Algorithms Workgroup, recently spoke with crypto.news, discussing the implications of quantum computing for blockchain security and how these threats are being addressed.

What are quantum computer attacks and why are they considered a threat to blockchain and cryptocurrencies in general?

Quantum computing attacks are somewhat similar to today’s brute force attacks in that their ability to try different combinations has improved dramatically over classical computers. If you have a three-digit combination lock, there are about a thousand combinations, and a patient thief could try all of them and unlock your suitcase or steal your bike. When you have a 12-character online password, the permutations increase to 7,212 different possible passwords, which a human couldn’t handle, but a classical computer could try them all in sequence and eventually find the right combination. If you have a wallet with an encrypted private key, the number of possible options increases to 2,256. That’s too many for classical computers to handle, but a quantum computer could.

This is a simplification of reality, but it conveys the idea of why a quantum computer attack is a threat to blockchains and cryptocurrencies. Many proposals to address this threat are largely theoretical or rely on the solution of creating new blockchains with built-in quantum resistance, but this is not practical when there are millions of dollars locked in existing blockchains. Instead, some researchers are focusing on end-to-end frameworks that can be applied to existing blockchains. 3 Another less obvious but potential threat is that quantum computers may be able to mine blocks much faster than classical computers, potentially centralizing mining power.

Can the blockchain industry address these issues before quantum computing technology is fully ready?

These are the problems we see today, but who knows what will emerge when quantum computing becomes a reality. We know that blockchain cryptography is evolving specifically to counter these threats, but the bigger question is: what haven’t we thought of? What threats exist that aren’t obvious today but will only emerge when we have these two technologies in the same space? We don’t know the answer, but we can be sure of one thing: there will be new and unexpected problems to solve when blockchains meet quantum computing.

In theory, quantum computers can break RSA and Elliptic Curve cryptographic algorithms; how imminent is this threat to current blockchain platforms like Bitcoin and Ethereum?

The field of quantum cryptography, while promising in its potential to crack existing ciphers, is far from ready for practical implementation. At the same time, on-chain cryptography continues to evolve, and today’s cryptographers are aware of the quantum threat on the horizon. As a result of this set of conditions, the development of new on-chain cryptography methods considers quantum-proof methods necessary. Today, there is no imminent threat to Bitcoin or Ethereum simply because quantum hardware remains largely a theoretical construct.

Do you think cryptographic standards can help protect blockchain networks from quantum threats? Can they be integrated into existing systems like Bitcoin and Ethereum?

There are several cryptocurrency algorithms designed to handle quantum resistance, such as SPHINCS+. While I chair a standards committee at IEEE to define best practices in writing quantum algorithms, there are other working groups at IEEE and many other standards organizations working on best practices for developing quantum-resistant software. Blockchains will be able to switch cryptographic algorithms sooner than many other areas of the industry. In particular, chains that have a governance structure in place will have an easier time making the switch. Chains like Bitcoin or Ethereum may take longer.

What are the challenges decentralized blockchains face as they migrate to post-quantum cryptography? Is the pseudonymity inherent in public blockchains a problem?

Blockchain user pseudonymity is not so much the issue here as the distribution of nodes on each blockchain, of which Bitcoin is the most extreme. Any mitigation strategy to make Bitcoin quantum-proof will almost certainly require a change to the wallet address format. Bitcoin’s proof-of-work consensus mechanism is less immediately threatened, but its address system (based on ECDSA – Elliptic Curve Digital Signature Algorithm) is vulnerable and will need to change. This has historically been a messy process that has created chaos and some losses. Ethereum faces similar challenges with its address structure and widespread distribution, but has the advantage in that it is more easily upgradeable than Bitcoin due to its smart contract capabilities.

So yes, there will be challenges in migrating any blockchain to post-quantum cryptography, and the wider the chain distribution, the more difficult it will be to overcome these challenges. Wallets that are slower to migrate may face greater vulnerability to quantum attacks. Ensuring that post-quantum systems can interoperate with legacy systems during the transition period will require maintaining dual systems for an extended period, and the larger key structure may impact blockchain performance.

So are there blockchain networks equipped for this transition?

Some more recently built blockchains have an easier path to mitigation. For example, Cosmos is configured to be easier to migrate. All chains built on the Cosmos SDK may want to choose a common quantum-proof algorithm to simplify wallet integration. Some chains are specifically designed to encrypt the data they carry in transactions, such as Secret Network and Fhenix. Secret uses secure hardware enclaves (such as Intel SGX’s TEE) to protect encrypted data on-chain. These ciphers are resistant to quantum attacks because the secure enclaves can change their encryption schemes on the fly, which can have some performance implications. Fhenix uses mathematics, or fully homomorphic encryption, to protect data in a complex encryption scheme that is quantum-resistant. The technology for FHE is not ready for deployment today, but its timeline is much shorter than that of quantum computers. This allows the future of blockchains to be realized natively, with quantum resistance built in, long before quantum computing is ready to attack blockchains.

How long does the blockchain industry have before the threat of quantum computing becomes inevitable?

Within the next 10-20 years, the [blockchain] The industry should be fully prepared. Many experts believe that quantum computers capable of breaking current cryptosystems could emerge in this timeframe. Beyond that, if left unaddressed, quantum computers will likely be able to break most current cryptosystems used in blockchains. The day when quantum computing threatens the encryption of Bitcoin and Ethereum is in the uncertain future. As for when a computer with sufficient hardware and software to handle complex problems will be ready, based on modeling the number of qubits developed since 2014 and projecting that timeline forward1, early estimates are 2035, with some saying much later, as late as the year 2050.

Fuente

Blockchain

Bitcoin (BTC) Price Crashes as Donald Trump’s Win Odds Dip

Published

4 months ago

1 August, 2024

BlockChainBulletin Staff

Markets received nominally good news on Thursday morning, with the US ISM manufacturing PMI for July falling much more than economists expected, sending interest rates to multi-month lows across the board. Additionally, initial jobless claims in the US jumped to their highest level in about a year. Taken together, the data adds to the sentiment that the US is on the verge of a cycle of monetary easing by the Federal Reserve, which is typically seen as bullish for risk assets, including bitcoin.

Fuente

Blockchain

Terra Blockchain Reboots After Reentry Attack Leads to $4M Exploit

Published

4 months ago

1 August, 2024

BlockChainBulletin Staff

Terra Blockchain Reboots After Reentry Attack Leads to $4M Exploit

Please note that our Privacy Policy, terms of use, cookiesAND do not sell my personal information has been updated.

CoinDesk is a awarded press agency that deals with the cryptocurrency sector. Its journalists respect a rigorous set of editorial policiesIn November 2023, CoinDesk has been acquired from the Bullish group, owner of Bullisha regulated digital asset exchange. Bullish Group is majority owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant digital asset holdings, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial board to protect journalistic independence. CoinDesk employees, including journalists, are eligible to receive options in the Bullish group as part of their compensation.

Fuente

Blockchain

$6.8M Stolen, ASTRO Collapses 60%

Published

4 months ago

1 August, 2024

BlockChainBulletin Staff

In the latest news in the blockchain industry, there has been a turn of events that has severely affected Terra and its users and investors, with the company losing $6.8 million. The attack, which exploited a reentry vulnerability in the network’s IBC hooks, raises questions about the security measures of the once celebrated blockchain protocol.

A web3 security company, Cyvers Alerts reported that the exploit occurred on July 31st and caused the company to lose 60 million ASTRO, 3.5 million USDC500,000 USDTand 2. 7 BitcoinThe flaw was discovered in April and allows cybercriminals to make payments non-stop by withdrawing money from the network.

Earth’s response

Subsequently, to the hack employed on the Terra blockchain, its official X platform declared the Suspension network operations for a few hours to apply the emergency measure. Finally in its sendTerra’s official account agreed, sharing that its operations are back online: the core transactions that make up the platform are now possible again.

However, the overall value of the various assets lost in the event was unclear.

Market Impact: ASTRO Crashes!

The hack had an immediate impact on the price of ASTRO, which dropped nearly 60% to $0.0206 following the network shutdown. This sharp decline highlights the vulnerability of token prices to security breaches and the resulting market volatility.

This incident is not the first time Terra has faced serious challenges. Earlier this year, the blockchain encountered significant problems that called into question its long-term viability. These repeated incidents underscore the need for stronger security measures to protect users’ assets and maintain trust in the network.

The recent Terra hack serves as a stark reminder of the ongoing security challenges in the blockchain space. As the platform works to regain stability, the broader crypto community will be watching closely.

This is a major setback for Terra. How do you think this will impact the blockchain industry?

Fuente

Blockchain

Luxembourg proposes updates to blockchain laws | Insights and resources

Published

4 months ago

1 August, 2024

BlockChainBulletin Staff

Luxembourg proposes updates to blockchain laws | Insights and resources

On July 24, 2024, the Ministry of Finance proposed Blockchain Bill IVwhich will provide greater flexibility and legal certainty for issuers using Distributed Ledger Technology (DLT). The bill will update three of Luxembourg’s financial laws, the Law of 6 April 2013 on dematerialised securitiesTHE Law of 5 April 1993 on the financial sector and the Law of 23 December 1998 establishing a financial sector supervisory commissionThis bill includes the additional option of a supervisory agent role and the inclusion of equity securities in dematerialized form.

DLT and Luxembourg

DLT is increasingly used in the financial and fund management sector in Luxembourg, offering numerous benefits and transforming various aspects of the industry.

Here are some examples:

Digital Bonds: Luxembourg has seen multiple digital bond issuances via DLT. For example, the European Investment Bank has issued bonds that are registered, transferred and stored via DLT processes. These bonds are governed by Luxembourg law and registered on proprietary DLT platforms.
Fund Administration: DLT can streamline fund administration processes, offering new opportunities and efficiencies for intermediaries, and can do the following:
- Automate capital calls and distributions using smart contracts,
- Simplify audits and ensure reporting accuracy through transparent and immutable transaction records.
Warranty Management: Luxembourg-based DLT platforms allow clients to swap ownership of baskets of securities between different collateral pools at precise times.
Tokenization: DLT is used to tokenize various assets, including real estate and luxury goods, by representing them in a tokenized and fractionalized format on the blockchain. This process can improve the liquidity and accessibility of traditionally illiquid assets.
Tokenization of investment funds: DLT is being explored for the tokenization of investment funds, which can streamline the supply chain, reduce costs, and enable faster transactions. DLT can automate various elements of the supply chain, reducing the need for reconciliations between entities such as custodians, administrators, and investment managers.
Issuance, settlement and payment platforms:Market participants are developing trusted networks using DLT technology to serve as a single source of shared truth among participants in financial instrument investment ecosystems.
Legal framework: Luxembourg has adapted its legal framework to accommodate DLT, recognising the validity and enforceability of DLT-based financial instruments. This includes the following:
- Allow the use of DLT for the issuance of dematerialized securities,
- Recognize DLT for the circulation of securities,
- Enabling financial collateral arrangements on DLT financial instruments.
Regulatory compliance: DLT can improve transparency in fund share ownership and regulatory compliance, providing fund managers with new opportunities for liquidity management and operational efficiency.
Financial inclusion: By leveraging DLT, Luxembourg aims to promote greater financial inclusion and participation, potentially creating a more diverse and resilient financial system.
Governance and ethics:The implementation of DLT can promote higher standards of governance and ethics, contributing to a more sustainable and responsible financial sector.

Luxembourg’s approach to DLT in finance and fund management is characterised by a principle of technology neutrality, recognising that innovative processes and technologies can contribute to improving financial services. This is exemplified by its commitment to creating a compatible legal and regulatory framework.

Short story

Luxembourg has already enacted three major blockchain-related laws, often referred to as Blockchain I, II and III.

Blockchain Law I (2019): This law, passed on March 1, 2019, was one of the first in the EU to recognize blockchain as equivalent to traditional transactions. It allowed the use of DLT for account registration, transfer, and materialization of securities.

Blockchain Law II (2021): Enacted on 22 January 2021, this law strengthened the Luxembourg legal framework on dematerialised securities. It recognised the possibility of using secure electronic registration mechanisms to issue such securities and expanded access for all credit institutions and investment firms.

Blockchain Act III (2023): Also known as Bill 8055, this is the most recent law in the blockchain field and was passed on March 14, 2023. This law has integrated the Luxembourg DLT framework in the following way:

Update of the Act of 5 August 2005 on provisions relating to financial collateral to enable the use of electronic DLT as collateral on financial instruments registered in securities accounts,
Implementation of EU Regulation 2022/858 on a pilot scheme for DLT-based market infrastructures (DLT Pilot Regulation),
Redefining the notion of financial instruments in Law of 5 April 1993 on the financial sector and the Law of 30 May 2018 on financial instruments markets to align with the corresponding European regulations, including MiFID.

The Blockchain III Act strengthened the collateral rules for digital assets and aimed to increase legal certainty by allowing securities accounts on DLT to be pledged, while maintaining the efficient system of the 2005 Act on Financial Collateral Arrangements.

With the Blockchain IV bill, Luxembourg will build on the foundations laid by previous Blockchain laws and aims to consolidate Luxembourg’s position as a leading hub for financial innovation in Europe.

Blockchain Bill IV

The key provisions of the Blockchain IV bill include the following:

Expanded scope: The bill expands the Luxembourg DLT legal framework to include equity securities in addition to debt securities. This expansion will allow the fund industry and transfer agents to use DLT to manage registers of shares and units, as well as to process fund shares.
New role of the control agent: The bill introduces the role of a control agent as an alternative to the central account custodian for the issuance of dematerialised securities via DLT. This control agent can be an EU investment firm or a credit institution chosen by the issuer. This new role does not replace the current central account custodian, but, like all other roles, it must be notified to the Commission de Surveillance du Secteur Financier (CSSF), which is designated as the competent supervisory authority. The notification must be submitted two months after the control agent starts its activities.
Responsibilities of the control agent: The control agent will manage the securities issuance account, verify the consistency between the securities issued and those registered on the DLT network, and supervise the chain of custody of the securities at the account holder and investor level.
Simplified payment processesThe bill allows issuers to meet payment obligations under securities (such as interest, dividends or repayments) as soon as they have paid the relevant amounts to the paying agent, settlement agent or central account custodian.
Simplified issuance and reconciliationThe bill simplifies the process of issuing, holding and reconciling dematerialized securities through DLT, eliminating the need for a central custodian to have a second level of custody and allowing securities to be credited directly to the accounts of investors or their delegates.
Smart Contract Integration:The new processes can be executed using smart contracts with the assistance of the control agent, potentially increasing efficiency and reducing intermediation.

These changes are expected to bring several benefits to the Luxembourg financial sector, including:

Fund Operations: Greater efficiency and reduced costs by leveraging DLT for the issuance and transfer of fund shares.
Financial transactions: Greater transparency and security.
Transparency of the regulatory environment: Increased attractiveness and competitiveness of the Luxembourg financial centre through greater legal clarity and flexibility for issuers and investors using DLT.
Smart Contracts: Potential for automation of contractual terms, reduction of intermediaries and improvement of transaction traceability through smart contracts.

Blockchain Bill IV is part of Luxembourg’s ongoing strategy to develop a strong digital ecosystem as part of its economy and maintain its status as a leading hub for financial innovation. Luxembourg is positioning itself at the forefront of Europe’s growing digital financial landscape by constantly updating its regulatory framework.

Local regulations, such as Luxembourg law, complement European regulations by providing a more specific legal framework, adapted to local specificities. These local laws, together with European initiatives, aim to improve both the use and the security of projects involving new technologies. They help establish clear standards and promote consumer trust, while promoting innovation and ensuring better protection against potential risks associated with these emerging technologies. Check out our latest posts on these topics and, for more information on this law, blockchain technology and the tokenization mechanism, do not hesitate to contact us.

We are available to discuss any project related to digital finance, cryptocurrencies and disruptive technologies.

This informational piece, which may be considered advertising under the ethics rules of some jurisdictions, is provided with the understanding that it does not constitute the rendering of legal or other professional advice by Goodwin or its attorneys. Past results do not guarantee a similar outcome.

Fuente