Bitcoin's rally faces a risk that isn't on the radar of most crypto investors: quantum computing.
The nascent technology, which drew attention this month after Google claimed a breakthrough with its new Willow quantum-computing chip, could one day enable hackers to break the encryption that keeps bitcoin secure. Such a hack could torpedo bitcoin's price, by allowing thieves to swipe coins out of supposedly secure digital wallets.
Researchers say a quantum device powerful enough to crack bitcoin is likely a decade or more away. Still, advances in the technology pose a long-term risk, unless bitcoin's fractious community of developers beef up its technology in a time-consuming upgrade.
A quantum-powered attack on bitcoin could have harmful spillover effects on traditional financial markets, analysts warn.
"What you've got here is a time bomb waiting to explode, if and when someone gets that ability to develop quantum-computer hacking and decides to use that to target cryptocurrencies," said Arthur Herman, senior fellow at the Hudson Institute, a think tank based in Washington, D.C.
A 2022 Hudson Institute study estimated that a quantum hack of bitcoin would cause more than $3 trillion in losses across crypto and other markets and trigger a deep recession. Herman said the likely costs of a quantum hack have swelled since the study came out, as bitcoin has climbed to near $100,000 and grown into an increasingly mainstream investment asset.
Google considers its recently unveiled Willow chip to be a breakthrough in quantum computing.
President-elect Donald Trump has pledged to create a strategic reserve for the government's bitcoin holdings, a sort of digital Fort Knox.
Quantum computing could allow thieves to raid that Fort Knox. Unlike standard computers, in which all data is fundamentally represented in either zeros or ones, quantum computers use the quirky properties of subatomic particles to represent data in "qubits," which can exist in a continuum of states that are mixtures of zeros and ones.
That allows quantum computers to race through tasks that would take standard computers far longer than a human lifetime to solve. Such tasks could include discovering new medicines, forecasting weather -- or cracking the encryption used to protect sensitive data.
For instance, one common encryption method involves very large numbers called public keys, which are multiples of two big prime numbers. The two primes can be combined to generate what is known as the private key. Data can be encoded with the public key, and decoded with the private key. As the names suggest, users keep their private keys secret, but public keys might be shared.
The strength of this method is that it takes a vast amount of time for a standard computer to derive the private key from the public key, because of the difficulty of factoring -- figuring out the primes that can be multiplied to yield the public key.
President Biden viewed quantum-computing technology at an IBM site in Poughkeepsie, N.Y., in 2022.
Quantum computing makes factoring far easier. An algorithm devised by a U.S. mathematician in 1994 makes it possible to factor huge numbers in minutes -- provided that you have a sufficiently powerful quantum computer.
Such a breakthrough would threaten not just bitcoin, but traditional finance, because many online banking systems use variants of public-key cryptography. But bitcoin could be a particularly tempting target for quantum thieves, security experts warn.
"Bitcoin is going to get targeted like crazy," said Skip Sanzeri, co-founder of QuSecure, a startup specializing in quantum-safe cybersecurity. "Banks have some regulation, some defense mechanisms and the ability to cover their clients, whereas bitcoin is the Wild West. Your wallet's not going to reimburse you if your bitcoin gets stolen."
While hackers have stolen bitcoin before, their attacks generally involved gaining unauthorized access to crypto exchanges. A quantum attack would be more insidious, because it would cast doubt on the security of the entire bitcoin network, not just on a few crypto exchanges with poor security.
Some troves of bitcoin are particularly susceptible to quantum thievery. In bitcoin's early days, it was held in addresses with exposed public keys, including the roughly one million coins believed to belong to Satoshi Nakamoto, bitcoin's mysterious creator. Some 1.72 million bitcoins -- valued at more than $160 billion at current prices -- are held in such addresses, which were later phased out, according to Galaxy Digital.
A bitcoin ATM at a gasoline station in Pasadena, Calif. The cryptocurrency has become an increasingly mainstream investment asset.
Ultimately, all bitcoins are at risk once quantum computers become powerful enough. That is because hackers could steal coins being moved from one address to another during the 10-minute window that it takes for the bitcoin network to confirm such transfers.
Some crypto veterans say there is still plenty of time for bitcoin to fix its vulnerabilities.
"There is definitely a quantum apocalypse on the horizon at some point in the future, but that point is a sufficiently long time away that there is no need for panic," said Emin Gün Sirer, founder of the Avalanche cryptocurrency.
Bitcoin could be secured by adopting newer forms of encryption that can't easily be cracked by quantum computers -- but such an overhaul could take years, crypto executives say. Because of bitcoin's decentralized nature, changing its technology requires broad consensus among people around the world who maintain its network. Past upgrades have been slow-moving and contentious.
Even after the community agrees how to quantum-proof bitcoin, there is another hurdle: Existing bitcoins would need to be moved into quantum-resistant addresses. Each individual or business holding bitcoins would need to execute such a transfer, or risk losing coins to quantum thieves.
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