Quantum Resistant Ledger (QRL), a blockchain technology designed to mitigate quantum computing attacks, has recruited testers to create 50 nodes and released an updated white paper by founder Peter Waterland. QRL is seeking comment on Slack prior to a presale.
Waterland has commented about the bitcoin scaling issue and the danger posed by quantum computing attacks on various bitcoin forums in recent years.
There are no known bitcoin quantum attacks at present. But if a quantum computer is created that can break ECDSA, one of the most common signature schemes, then all existing ledgers are susceptible to attack, according to Waterland.
Founder Sounds Warning
“Classical computers cannot break ECDSA through brute force attacks – there isn’t enough energy in the sun to guess a single private key correctly,” Waterland told Hacked.
“But a quantum computer may use Shor’s algorithm to reconstitute a private key from a public key. And the last time I checked, nearly half of all bitcoin addresses had revealed public keys. The problem is that when a bitcoin or Ethereum transaction occurs, the public key of the sending address is revealed and stored for all time in the blockchain. So at some point in the future, those addresses (currently nearly half) are at risk of quantum theft.”
“Once the public testnet has been hardened and is sufficiently stable, we will announce a launch date for the mainnet release,” Waterland said.
“It is exciting to be the first blockchain in the space to offer ledger-wide post-quantum security to users. Anyone interested may read the whitepaper or inspect our github repository via http://theqrl.org. We currently have a team of four devs, but are always looking for more volunteers.”
Jomari Peterson, a strategy, operations and development expert working with QRL, noted a vibrant community, along with the implementation of an extended merkle signature scheme (XMSS), is key to securing the technology’s future. For the system to be secure, it should not be feasible to break within the next 50 to 100 years.
The tester and public participation are expected to create a scalable and efficient quantum resistant security standard.
A small core of private investors (early bitcoiners and interested parties) are funding the research and development of the open source project, Waterland said.
How It Began
QRL began as a foray into coding a library of post-quantum secure hash-based digital signatures such as Lamport, Winternitz and Merkle Signature Scheme, he said. It then developed into a functional prototype ledger aiming to experiment with the use of post-quantum secure signatures in a live blockchain environment.
Development started around July 2016.
“After discussing post-quantum signatures with some members of the academic community, I realized that the EMSS would be an excellent design choice for a potentially successful blockchain ledger,” Waterland said.
“Over the last six months the QRL has developed gradually and now features fully integrated XMSS transactions with keys generated via a pseudorandom number function to allow much smaller keys and transaction sizes, as well as deterministic wallet recovery.”
While it was initially secured by proof-of-work, the team has moved towards a final proof-of-stake algorithm design.
“An ideal of the project is to allow all nodes to earn passive income, and several members of the team already have the QRL test node running from Raspberry Pi’s, so the hardware requirements are minimal,” Waterland said.
How It Works
The QRL uses a block selection algorithm based upon the closest hash of published reveal hashes from each stake validator (from a pre-signed iterative hash chain, logged to the blockchain as a transaction in the previous epoch) to a pseudo-randomly generated 32-byte number.
“Our latest design is extremely resistant to gaming and collusion as well as providing defenses against block withholding and Sybil stake attack strategies,” he said.
“We plan to integrate a proof-of-stake based voting/governance system regarding regular hard fork upgrades.”
There are some challenges to working with hash-based signatures like XMSS – namely the size of signatures (and therefore transactions) is far larger than for a conventional ECDSA chain like Bitcoin or Ethereum, but also the signature scheme is stateful – so a signature can only be used once safely. The blockchain must store all public keys signed for an XMSS address forever.
Existing Schemes Are Vulnerable
The commonly used ECDSA, DSA and RSA signature schemes are vulnerable to quantum computing attack, the white paper noted. But a quantum resistant blockchain ledger can counter a sudden, non-linear quantum computing advance.
To spend unspent transaction outputs from a bitcoin address, it is necessary to create a transaction containing a valid elliptic curve signature from the private key for the specific bitcoin address. The chance of a specific bitcoin private key collision is one in 2,256. But when a transaction is signed, the sender’s ECDSA public key is revealed and stored in the blockchain. The best practice is not to reuse addresses. However, as of November 2016 49.58% of the bitcoin ledger is held in addresses with public keys that are exposed.
A quantum computer could theoretically reconstitute the private key given an ECDSA public key.
It is not certain how much quantum computing has advanced or that any breakthroughs will be publicized to allow cryptographic protocols to be made post-quantum secure.
Bitcoin could be an early target of a quantum computer.
If a significant quantum computing advance became public, node developers could deploy quantum-resistant cryptographic signature schemes into bitcoin and advise users to move from ECDSA-based addresses to new quantum-safe addresses.
A silent, non-linear quantum computing advance followed by a nuanced attack on bitcoin addresses with exposed public keys would be more problematic. The thefts could devastate the bitcoin exchange price due to heavy sell pressure and a loss of confidence in the system. The role of bitcoin as a store of value would suffer.
Crypotgraphic Schemes Offer Solutions
Several cryptographic systems are believed to be quantum-resistant, the white paper noted. These include lattice-based cryptography, hash-based cryptography, secret-key cryptography, code-based cryptography and multivariate-quadratic-equations cryptography. All are believed to resist both classical and quantum computing attack due to long key sizes.
One-time signatures offer satisfactory cryptographic security for verifying and signing transactions, but they can only be used once safely. Extending the signature scheme to incorporate more than one valid one-time signature (OTS) signature for each ledger address is a solution. A binary hash tree called a merkle tree can achieve this.
The Merkle Tree’s Role
A merkle tree is an inverted tree with parent nodes computed by hashing the linking of child sibling nodes upwards in layers to the root. Any node’s existence can be proven cryptographically by computing the root.
One strategy to defer computation during tree (and key) creation and extend the number of OTS keypairs available is to use a tree that is itself composed of merkle trees – a hypertree.
The cryptographic security of the signature scheme is secure against classical and quantum computing attack in the design of QRL.
QRL proposes an extensible, signature scheme composed of chained XMSS trees.
As the number of trees within a hypertree increases, signature and key sizes grow linearly, but the signature capacity grows exponentially.
A Public Blockchain
QRL is planned as a public blockchain secured by a proof-of-stake algorithm. Each stake validator signs a transaction containing the final hash of an iterative chain of length 10,000 hashes. With the stake transaction confirmed, each node can connect the cryptographic identity of the stake address to the hash chain for the next epoch.
The bigger transaction sizes in comparison to other ledgers require a transaction fee for each transaction. The market should set the minimum fee miners will accept. A minimum value will be set at the protocol level. As a result, miners will order transactions from the mempool to add to a block at their discretion.
The QRL will use a token as the base currency unit.
Like bitcoin, QRL will have a fixed upper limit to the coin supply. A smoothly exponential decay in the block-reward is favored up to the coin supply ceiling. This will remove the volatility associated with the bitcoin “halving” phenomenon.
Other Crytocurrencies Vulnerable
Bitcoin isn’t the only cryptocurrency at risk to quantum computer attack.
Other major ledgers use elliptic curve cryptography for their signatures within transactions.
“They are therefore all vulnerable to a quantum computing advance,” Waterland said.
“An important point to consider is that if just 10 or 20% of addresses remain in normal ECDSA, addresses, then funds can be stolen and the value of the whole ledger sent to zero by an attacker with a quantum computer,” he said.
“Some addresses being secure doesn’t protect a ledger with mixed address types. It was for this reason that we decided to create a ledger which is specially designed to be completely secure against classical and quantum computing attack – even if this poses some design challenges!”
Fidelity Investments is Mining Cryptocurrency
Fidelity Investments is a multi-billion dollar brokerage that just so happens to be mining cryptocurrency. In fact, it has been at it for three years, using its own computers to harvest bitcoin and Ethereum.
CEO Abby Johnson recently told Fortune that its U.S.-based mining operation is “making a lot of money.” This comes despite running a relatively modest operation.
Hadley Stern, Senior VP of Fidelity Labs, described his company’s venture as an “experiment.”
The real reason we began mining, and still do, is to learn how the network works, how consensus works, how difficulty levels work,” he said in reference to the mining process.
The key to profitability has been the dramatic rise in cryptocurrency over the past year. Bitcoin and Ethereum are the world’s No. 1 and 2 cryptocurrencies by market capitalization, and no-one else comes close.
Well Ahead of the Pack
The fact that Fidelity has been at this for three years speaks volumes about the company. Other, much bigger players are still dipping their toes in the market, but are unsure about how to proceed. Goldman Sachs is reportedly on the fence about starting a cryptocurrency trading operation, while J.P. Morgan has already begun handling customer orders for bitcoin-based instruments.
Fidelity is doing a lot more than just mining tokens. Earlier this year, it reached an agreement with Coinbase to let customers view cryptocurrency prices alongside other assets on their Fidelity homepage.
Coinbase is the world’s most funded cryptocurrency exchange with more than 7.4 million users.
The cryptocurrency market ended the week on a firm note, with bitcoin (BTC/USD) reaching a session high of $4,425.00. At press time, the index was up 1.6% at $4,368.
Ether is also trading higher against the dollar, with the ETH/USD rallying more than 3% to $305.
Ripple (XRP) lost momentum on Friday, but still managed a weekly gain of 21%.
Chinese Government Eyeing Fresh Bitcoin Legislation?
The Chinese government could roll out fresh cryptocurrency regulation in the coming months permitting licensed brokers to operate, based on recent information from Xinhua.
The state-owned news publication recently revealed that the government is mostly concerned with stamping out illegal activity involving bitcoin and other cryptos. Government authorities could be planning to regulate the market by creating a licensing program with strict Know Your Customer (KYC) and Anti-Money Laundering (AML) systems.
The Case for AML
The need for KYC/AML protocols has long been raised by cryptocurrency proponents, especially in reference to initial coin offerings (ICOs). In response, the blockchain community has come together to create the Simple Agreement for Future Tokens (SAFT). The SAFT is both an instrument and open-source framework for token sales that vets accredited investors.
SAFT activity is quickly gaining traction, with the likes of Gizer recently issuing a presale of its ICO through SAFTLaunch.
SAFT was officially created by Protocol Labs in close collaboration with AngelList and Cooley.
China’s Stance Looms Large for Cryptocurrency Market
Although digital assets have recovered from the China-induced flash crash of September, favorable regulations on the mainland could mean big business for bitcoin exchanges. Prior to the ban on ICOs and bitcoin brokers, Chinese investors were responsible for a quarter of all BTC trades.
According to Xinhua, China is likely to pursue a licensing program similar to Japan, a country that recently approved 11 cryptocurrency exchanges. CnLedger, a leading source of cryptocurrency news in China, recently had this to say:
“Xinhua News, official press agency of CN: Virtual currencies have become the top choices of underground economies. We shall adopt ‘0-tolerance policies’ towards crimes hidden underneath and take measures such as record-keeping, licensing, AML processes, real-name, limiting large transactions.”
Is China’s cryptocurrency ban temporary? It certainly looks that way. Regulators must already know that the ban hasn’t stopped mainland investors from buying cryptocurrencies next door in Hong Kong or Singapore. A saner approach to an all-out blanket ban is a tighter regulatory framework that will stamp out money laundering and other underground activities.
«Featured image from Shutterstock.»
Tim Draper Has Made Over $110 Million Since 2014 With his Bitcoin Investment
Tim Draper, the billionaire technology investor and prominent venture capitalist who has invested in some of the most successful technology startups in the likes of Coinbase, Patreon, SpaceX, Tesla, Box, FourSquare, has profited over $110 million from his investment in bitcoin less than three years ago.
In 2014, Draper participated in the auction of 144,336 bitcoins by the US government and the US Justice Department, which were seized during the investigation into Silk Road, a dark web marketplace. Draper was granted the permission to purchase a batch of 30,000 at around $600 from the US government.
Upon securing 30,000 bitcoins, Draper told Fox Business:
“[I’m] very excited about bitcoin and what it can do for the world. Bitcoin is as big a transformation to the finance and commerce industry as the internet was for information and communications. If bitcoin were here in 2008, it would be a stability source for our world economy. Everybody should go out there and buy a bitcoin. Every investor who’s a fiduciary should at least be partially involved in bitcoin because it’s a hedge against all the other currencies. There’s a whole ecosystem being built that’s going to make commerce much easier with much less friction and safer.”
Today, Draper’s 30,000 bitcoins are worth $129.9 million. Considering that Draper had spent $19 million purchasing the batch of 30,000 bitcoins in 2014, Draper has recorded a profit of over $110 million in less than three years.
While Draper held onto his investment in bitcoin, the US Justice Department was quick all of the 144,336 bitcoins seized during the Silk Road operation. According to various sources, the US government sold the majority of its 144,336 bitcoins at a price of $336, at $48 million. If the US government had sold its bitcoins in 2017, it would have generated an additional profit of around $573 million, as 144,336 bitcoins at today’s bitcoin price of $4,330 are worth $624.9 million.
Since 2014, in addition to purchasing tens of thousands of bitcoins, Draper has funded some of the most successful bitcoin companies in the cryptocurrency market including Coinbase and Korbit. Earlier this year, Coinbase secured a $100 million investment at a $1.6 billion valuation, while Korbit was acquired by the parent company of a $10 billion gaming company in Nexon at a $140 million valuation.
Furthermore, Draper has not sold his stake in Coinbase and earlier this year, Brian Armstrong, the CEO of Coinbase, revealed that Coinbase is still at an early stage in terms of developing and scaling. Armstrong noted that it will evolve into the safest and most trusted exchange in the global market.
“Digital currencies are having their ‘Netscape’ moment. The pace of innovation has been accelerating and we are now seeing exciting projects and companies being built on top of digital currencies. We’re beginning to transition into phase three of our secret master plan. Our goal is to be the safest, most trusted and compliant, and easiest to use. Not the first to market with new assets. Especially at scale, it takes time to ensure any new asset we add is well tested and secure,” said Armstrong.
Coinbase is also one of the two exchanges in the US market apart from Gemini that is targeting institutional and retail investors by providing sufficient liquidity. As Coinbase and its flagship cryptocurrency trading platform GDAX continue evolve, Draper will position himself at the forefront of cryptocurrency innovation and disruption.
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