Coinbase, Holding 5% of Bitcoin Supply, Urges Immediate Quantum Security Measures

Coinbase is urging Bitcoin developers to begin preparing for quantum computing threats now, recommending adaptable address formats, backup quantum-resistant keys and a separate discussion about coins that may be permanently lost.

What would happen if a quantum computer became powerful enough to break a Bitcoin wallet’s security and steal its funds?

The possibility has become a growing concern, as some forecasts suggest that a machine capable of carrying out such attacks could emerge within the next few years, even though no such computer exists today.

Coinbase (COIN), a Nasdaq-listed cryptocurrency exchange that safeguards approximately 5% of the total Bitcoin supply on behalf of clients such as banks, asset managers and hedge funds, has outlined its position in a new blog post. The company explained how Bitcoin could strengthen its defenses against a potential quantum computing threat.

Coinbase’s primary recommendation is to begin developing protections immediately rather than waiting until the danger becomes imminent. It also believes questions surrounding lost or inactive Bitcoin should be addressed independently of the technical upgrade.

Understanding the exchange’s recommendations first requires looking at how Bitcoin’s security system works and why quantum computers could eventually challenge it.

How Bitcoin’s security works

A Bitcoin wallet can be compared to a locked mailbox with an opening that anyone can use to deposit a letter, while only its owner possesses the key needed to open it. The public key serves as the publicly accessible part of this arrangement, while the private key acts as the secret credential that authorizes access to the funds.

When someone sends Bitcoin, their wallet uses its private key to generate a digital signature that proves the transaction has been authorized. The Bitcoin network verifies that signature against the relevant public key before accepting the transaction.

Bitcoin currently relies on two digital signature systems, known as ECDSA and Schnorr. Both remain highly secure against conventional computers because existing technology cannot efficiently solve the mathematical problems required to derive a private key from a public key or signature.

Why quantum computers could pose a threat

A sufficiently advanced quantum computer could potentially reverse-engineer private keys from exposed public keys, allowing attackers to access and transfer Bitcoin held in vulnerable wallets. Google researchers have suggested that a machine capable of breaking some of today’s cryptographic protections could become possible as early as 2029.

Researchers refer to a quantum machine with this capability as a cryptographically relevant quantum computer, or CRQC.

One proposed defense is post-quantum cryptography, which involves developing digital signature systems designed to withstand attacks from quantum computers.

Coinbase argues that choosing a new cryptographic method alone will not be enough. A comprehensive Bitcoin upgrade must protect existing and future holdings, operate within the blockchain’s limited transaction-data capacity and remain compatible with conventional computers that help maintain the network.

The solution must also work for individual users and large cryptocurrency businesses while accounting for older Bitcoin holdings that might never be transferred.

Coinbase calls for immediate preparations

Coinbase believes development should begin now because Bitcoin’s decentralized governance structure can make major technical changes slow and difficult to coordinate.

The exchange noted that reaching consensus on protocol changes and migrating the broader ecosystem can take years. Consequently, preparation should begin well before a quantum computer capable of breaking existing cryptography is announced.

Bitcoin developers are already exploring potential improvements, and Coinbase has outlined several principles it believes should guide that work.

Key measures proposed by Coinbase

1. Separate transaction formats from signature methods

Coinbase recommends designing Bitcoin transactions so that new post-quantum signature systems can be introduced without requiring a complete overhaul of the network. Such flexibility would make it easier to add, replace or combine different quantum-resistant signature technologies as they develop.

The exchange identified P2MR (BIP-360) and P2TRv2 as proposals that could support this adaptable approach.

2. Introduce protection in stages

Coinbase supports allowing active wallets to adopt quantum-resistant or hybrid signatures before Bitcoin finalizes rules governing older signature systems.

One possible model would use a “1-of-2” arrangement, allowing a Bitcoin transaction to be authorized by either a conventional ECDSA or Schnorr key or a post-quantum key.

This approach could give users an opportunity to strengthen their wallet security earlier, without requiring every Bitcoin holder to upgrade simultaneously or risk abruptly losing access to their funds.

3. Carefully evaluate stateful signature systems

Certain post-quantum signature methods require wallets to maintain records, known as state, tracking which one-time signing keys have already been used. Reusing one of these keys because of an outdated backup or a failure to save the latest record could enable attackers to forge signatures.

Although stateful signatures can offer advantages in size and speed, they introduce additional risks if implemented incorrectly.

Coinbase therefore recommends supporting stateless alternatives that do not require this type of record-keeping. Giving wallet developers and users both options could reduce the likelihood of security failures, forged transactions and lost funds.

4. Prioritize reliable implementations

Coinbase wants developers to place strong emphasis on the practical security of post-quantum software. This includes consistent signature verification across platforms, protection against timing-based information leaks, clear configuration options and safeguards against failures in random-number generation during signing.

Reliable implementations would help reduce vulnerabilities that could otherwise expose wallets to hacking attempts, software bugs or accidental losses.

5. Ensure compatibility with multi-party computation

Multi-party computation, or MPC, is another important consideration for Coinbase and its institutional customers. The technology allows multiple participants to contribute to cryptographic operations without requiring one person or device to hold the entire private key.

Coinbase believes post-quantum signature systems should work effectively with MPC. This could help exchanges, custodians and large businesses strengthen their Bitcoin security while reducing the risks associated with concentrating key control in a single location.

6. Establish a migration path for wallets that upgrade late

If Bitcoin eventually restricts or disables spending through older ECDSA and Schnorr signature systems, some holders may still have funds stored in legacy wallet formats.

Coinbase suggests that developers should examine whether these users could eventually transfer their holdings into quantum-resistant outputs, while carefully assessing the security implications and trade-offs of any proposed solution.

The exchange emphasized that this question can be debated separately from the core work of implementing post-quantum signatures. Doing so would allow technical defenses to advance without being delayed by disagreements over how older holdings should be treated.

The unresolved question of lost Bitcoin

Coinbase also highlighted the challenge posed by dormant wallets and Bitcoin that may never be upgraded. Some holdings belong to people who have lost their private keys, while certain older address formats have already exposed public keys on the blockchain.

The exchange warned that a sufficiently advanced quantum attacker could potentially exploit these vulnerabilities and steal funds before the broader public becomes aware of the threat.

However, Coinbase did not endorse a specific policy for dealing with inaccessible or abandoned Bitcoin. Instead, it argued that the issue should be discussed separately from the technical development of quantum-resistant protections, preventing disagreements over old coins from delaying security improvements for everyone else.

The company also stressed that any proposed recovery mechanism must itself be resistant to quantum attacks. Otherwise, a process intended to protect vulnerable holdings could create another opportunity for theft.

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