A dispute concerning the monetary policy and ideology of Bitcoin in the quantum prelude.

Written by: nic carter

Translated by: AididiaoJP, Foresight News

Months ago, I was seen as public enemy number one for pointing out that elliptic curve cryptography might not survive this decade and that Bitcoin's cryptography must be adjusted. Today, most Bitcoin supporters have been convinced and are debating how and when we should upgrade to cope with quantum computers. Bitcoin developers have finally begun to unveil details of their anti-quantum plans—the irony is that this move is meant to rebut my claims about their inaction.

Regarding the anti-quantum transition, the issue is that as a Bitcoin supporter, if the totally cryptography-based monetary system of Bitcoin falls behind Google (who will complete migration before 2029), Cloudflare (2029), Ethereum (2029), and the U.S. government (2030 to 2035) in terms of upgrade progress, it cannot claim that this protocol is cutting-edge technology. Not to mention how ridiculous it is to bet the entire fate of a multi-trillion-dollar currency network on the wishful fantasy that technology will not advance quickly, merely being the last mover on updating its algorithm is enough to be embarrassing. Some Bitcoin supporters associate quantum computing with Vitalik and dubious public stocks and reflexively deny the risks posed by the technology. But we have no reason to hold the entire network hostage due to the traumas of some old-school Bitcoin supporters. Bitcoin will naturally filter out a batch of oddballs and fanatics: some of whom will happily deny the empirical realities of quantum mechanics to justify their views, but they can simply be ignored.

So, we will eventually add anti-quantum signatures to Bitcoin, and I can roughly tell you what it will look like. After a soft fork, there will be a transition period during which you can choose to use regular elliptic curve cryptography signatures or entirely new anti-quantum signatures (perhaps even more than one). At any time before the quantum day arrives, network participants can migrate based on their assessment of risk. Ultimately, it would also be best for the elliptic curve cryptography-based signatures to be completely disabled before the quantum day arrives. I hope this process will proceed in an orderly manner, without any serious accidents, and that all active participants have the opportunity to rotate their wallets before the quantum day comes.

Then, the real trouble begins. As a cryptographically significant quantum computer draws nearer (before breaking 256-bit elliptic curve cryptography, there will be early commercial use cases, but the development could be rapid), a massive debate will erupt within the Bitcoin community regarding the 1.7 million coins still tied to public key outputs. These are the coins of Satoshi Nakamoto and other early miners. This debate will be exceptionally heated because both sides’ viewpoints are deeply rooted and entirely reasonable.

The line has been drawn

Divergence has begun to show:

The freezing camp (financial investors, institutions, trustees): For them, freezing is the obvious choice. These coins are presumed lost, and their owners have had nearly 20 years to take action; their failure to migrate them to anti-quantum addresses is negligence for which they have been adequately notified. For institutions, there’s no alternative. Either delist and completely abandon all revenue associated with Bitcoin asset management products, or ensure Bitcoin adopts the frozen fork. A world where over 1.7 million Bitcoins fall into potentially hostile hands is unacceptable to them, as they are trustees of client funds. As these coins are restored through quantum means, Bitcoin will suffer catastrophic volatility, not only due to unexpected inflation but also because of the unknown motives of new owners. For this reason, I expect that most custodial institutions, exchanges, and asset management firms will commit in advance to only recognizing frozen forks, which will greatly infuriate the other camp.

The unfrozen camp (hardcore Bitcoin extremists, some developers, ideologically-driven individuals): For many in this group, there is no need for debate: Satoshi set the currency parameter at 21 million, and no living person has the right to arbitrarily change it to over 19 million. Bitcoin will not perform selective “abnormal state changes” like Ethereum did after the hack of the decentralized autonomous organization in 2016. Even after losing 850,000 Bitcoins in the DAO incident, there were no protocol-level measures taken to recover the funds; this is not in our DNA. Moreover, Satoshi and other early miners obtained their tokens fairly; those tokens are their rightful rewards as early stewards of the protocol. Additionally, if we allow institutions to materially coerce the Bitcoin community into a significant monetary change, we will have betrayed the original decentralized premise of the network. If we grant them such power, who knows what they will push for next—changes to proof of work? Customer identity verification requirements at the protocol layer? Furthermore, attackers by logic will not sell off all their tokens in the market. Even if they are somewhat “malicious,” economic rationality indicates that they would only hold their tokens rather than suddenly sell them off. This camp believes that it is better to endure temporary volatility than to damage the ideals of the network. The “unfrozen” camp describes freezing as “an attack on Bitcoin,” ignoring the fact that proponents of freezing are also equal and valid participants in the network.

Now, these two groups are not distinctly divided. Firm Bitcoin advocates who possibly fall into the “unfrozen” camp are also investors, but their time horizons and risk exposures differ from those institutions that hold Bitcoin for clients. Some developers roughly belong to the freezing camp. Piet Uyala, perhaps the most influential Bitcoin core developer today, has stated:

“These coins must certainly be confiscated. If and when (and that’s a huge assumption) the existence of cryptographically-breaking quantum computers becomes a credible threat, the Bitcoin ecosystem has no choice but to remove those signature schemes vulnerable to quantum computers (including elliptic curve digital signature algorithms and Bitcoin Improvement Proposal 340) through soft forks. The other option is that millions of Bitcoins face the risk of being stolen; under that scenario, I cannot imagine that the currency can retain any value. And this will affect everyone, even those who have prudently moved their tokens to anti-quantum protection schemes.”

You can find more summarized developer opinions here.

But overall, the two main camps can be divided into: hardcore, ideologically-driven Bitcoin extremists (unfrozen) and institutions and large investors (frozen). Or in other words, “economic nodes” (large asset management firms, institutions, investors) against the “social layer” (Bitcoin supporters more concerned about principles than expediency). During the block size war, it was widely believed that the “social layer” defeated the demands of the economic nodes.

Wage a war

Amidst the contours of this debate, two main trajectories (and a hidden third path) are generally anticipated. In my view, the most likely outcome is that the economic nodes will win: the most significant institutions in the Bitcoin field will collectively sign a letter declaring that they will only recognize Bitcoins that have implemented the “frozen” fork as “real” Bitcoins, any other fork being an offshoot. For these institutions, the other alternative is to delist Bitcoin and completely cease their Bitcoin-related operations; some might indeed do so out of a lack of resolve. I suspect that to avoid fragmentation (how to handle a scenario where a Bitcoin ETF suddenly splits into two?), most large ETF issuers will strive to prevent a value-destructive split and will decide early on to only support one side of the fork. The tokens on the other side will be sold off, with proceeds going to the corporate entity rather than clients. Exchanges may be more accommodating, choosing to support both forked chains and “let the best one win,” giving clients a choice. However, overall, I believe institutions will firmly side with only supporting the frozen fork because they cannot afford the responsibility risk of client assets being wiped out overnight due to a malicious actor.

Another possibility is that Bitcoin's “immune system” is activated, resulting in an outcome similar to the block size war, where enterprises retreat and submit to the will of the community. I find this possibility extremely slim—though many Bitcoin supporters may anticipate such a development—because 2026 is not 2017. From 2015 to 2017, active institutions were limited to crypto-native companies—entities like the Chicago Mercantile Exchange were just beginning to support Bitcoin and were not influential enough, let alone asset management companies or ETF issuers. Thus, crypto-native enterprises like Treasury companies eventually understood that there was no need to fight a brutal battle over a 2x enlargement or larger block size issue, enabling purists to win through user-activated soft forks and the activation of segregated witness. Another reason the 2x enlargement proposal failed was the lack of sufficient developer talent to push for block enlargement forks. But this is not the case for the frozen fork. You will find many developers willing to work on the side of the frozen fork.

As I said, times have changed, because such a large proportion of Bitcoin is held by corporate entities like MicroStrategy or custodial institutions, exchanges, and asset management companies. The influence at the economic level is much more significant today and is concentrated in the hands of a dozen important companies, each with voting power. Moreover, the economic rationale for supporting freezing is far more apparent than that for enlarging block size, the latter being economically marginal and more of an engineering issue. Furthermore, influential developers and community members with substantial social stature, like Jameson Lopp and Piet Uyala, have publicly expressed their support for freezing, causing the “ideological hardliners” side to be further divided.

So my base case is that investors and institutions will win, and they will do so decisively by merely committing in advance to the frozen fork. Many Bitcoin supporters will complain, but they will ultimately acknowledge the economic validity of this argument. They also want to make money. Most are not willing to see their life savings and wealth go to zero for the sake of ideological purity.

The hidden third path

But there is another path. Bitcoin does not necessarily have to make a cruel choice between economic destruction and abandoning its founding principles. A possible "compromise solution" could potentially be reached, which would rescue those coins in the quantum dilemma while (roughly) maintaining the purity of Bitcoin's monetary policy and ideology. I am referring to the legal recovery or "rescue" of these vulnerable tokens.

To ensure this outcome, one necessary condition is that one or more American companies must win in the quantum race (which I believe is highly probable).

The process would look like this. An American company, whether Google, IBM, or another leader in the quantum field (most of whom are American companies), will first obtain a cryptographically relevant quantum computer and contract with the U.S. government to legally recover the 1.7 million coins paid to public keys. They will not obtain ownership of these tokens but will be designated by the court as a neutral custodian or court-authorized custodian responsible for protecting and returning the assets to their rightful owners as much as possible or holding them in trust while awaiting judicial resolution. Essentially, a rescue company retrieves property from a ship in peril and receives court-mandated rescue compensation, but does not gain ownership of the recovered assets.

Some may argue that Satoshi's Bitcoin would be more similar to “finder's law”, or more commonly stated as “finders keepers”. If the property is deemed abandoned, the finder who takes possession gains full ownership. I believe the probability of this situation is much lower, as U.S. courts tend to require original owners to definitively relinquish control, which is highly unlikely ever to happen with Satoshi.

Although the principle of possession by rescuers is not a practically applicable judicial principle (as Satoshi's Bitcoin is not literally a sunken treasure), it is the best analogy and a reasonable reference point for the courts seeking inspiration. In this case, Google or another entity that successfully builds a cryptographically relevant quantum computer will be granted temporary exclusive authorization to recover those 1.7 million Bitcoins deemed “in peril” (because other competitors may be closely following and poised to possess cryptographically relevant quantum computers). Other companies will either be included in a consortium or be legally prohibited from attempting recovery. These tokens will be transferred to a court-controlled address and placed into a structure for property takeover or trust. Then, claimants (Satoshi or others) can verify ownership by providing conventional evidence (proving they indeed mined these coins in 2009 to 2010). This is difficult, but if sufficient electronic records are kept, it is not impossible. The rescuers will receive compensation commensurate with the difficulty of recovery and the costs incurred. The reward could be quite substantial.

If no one claims (I think the possibility of Satoshi or others claiming later is very minimal, if there is any, it will be rare), the fate of these tokens becomes somewhat ambiguous. Theoretically, the property will revert to the government, be liquidated, and the proceeds used, but with a permanent liability—that if Satoshi returns and requests the return of his funds. The magnitude of the liability and the unclear ownership indicate that this matter needs to be handled through some special federal process; no single state would be willing to assume such a massive liability. Therefore, I believe the most likely outcome is that these tokens will ultimately fall into the Bitcoin reserves managed by the Treasury—Satoshi will have the right to claim but in reality it will be U.S. government property.

Admittedly, this may not be the outcome that best aligns with the spirit of cypherpunk, but most Bitcoin supporters have already come to terms with the involvement of the U.S. government in Bitcoin affairs, and many even vocally support a strategic Bitcoin reserve, thus Bitcoin supporters are not hypersensitive to governmental intervention in the protocol when it aligns with their interests. In this scenario, the U.S. government would actively confront the greatest threat facing Bitcoin and ensure that these tokens would not be thrown into the market, thus doing us all a great service—and in a way that requires no arbitrary changes to the protocol layer.

This idea may seem fanciful, but I believe it is indeed possible.

So, what outcome do I personally hope to see?

My preferences, in order, are as follows:

1. These tokens are legally rescued, held in trust until claimed by Satoshi, and ultimately revert to government ownership to be included in strategic Bitcoin reserves.
2. Implement freezing.
3. Do not implement freezing, and Bitcoin bravely dies.

I think option 1 is preferable to option 2, because if Bitcoin indeed freezes these tokens, then some core of Bitcoin will truly die. It will survive, but it will be forever changed—one could argue it will no longer be the network that Satoshi established years ago.

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