Coinbase Seeks Immediate Quantum Safeguards for Its 5% Share of Bitcoin

Coinbase is pushing for Bitcoin to start developing quantum-resistant security measures now, calling for adaptable transaction formats, backup quantum-safe keys and a separate discussion about how to address permanently inaccessible coins.

What happens if a quantum computer becomes powerful enough to compromise Bitcoin wallets and steal their funds? Although this threat remains theoretical, some projections suggest that quantum technology capable of breaking current cryptographic systems could emerge within the next few years.

Coinbase (COIN), the Nasdaq-listed cryptocurrency exchange that holds approximately 5% of the Bitcoin supply for clients such as banks, asset managers and hedge funds, has outlined its recommendations in a new blog post. The company believes Bitcoin developers should begin preparing for a potential quantum computing breakthrough before existing security measures become vulnerable.

Coinbase also argues that the technical work needed to protect Bitcoin should proceed separately from discussions about coins that may be permanently lost.

Bitcoin’s current security model

Bitcoin uses public and private keys to secure transactions. A public key helps the network verify a transaction, while the private key allows its owner to authorize the movement of funds.

When someone sends Bitcoin, their wallet generates a digital signature using the private key. The network checks the signature against the corresponding public key to confirm that the transaction is legitimate.

Bitcoin relies on two main signature schemes, ECDSA and Schnorr. Both are considered secure against conventional computers because deriving a private key from a public key or its associated signature is computationally impractical.

Why quantum computing presents a potential risk

A sufficiently advanced quantum computer could potentially use exposed public keys to calculate private keys, allowing attackers to gain control of Bitcoin held in vulnerable wallets.

Researchers refer to a machine capable of breaking widely used cryptographic systems as a cryptographically relevant quantum computer, or CRQC. Google researchers have suggested that such capabilities could potentially arrive by 2029, although no definitive timeline exists.

Post-quantum cryptography is one proposed solution. It involves cryptographic methods specifically designed to withstand attacks from quantum computers.

However, Coinbase says Bitcoin needs a comprehensive security transition rather than simply replacing its existing signature algorithms. Any proposed upgrade must protect old and new holdings, work within the blockchain’s transaction-data limitations and remain compatible with conventional computing systems.

It must also support both individual users and major financial institutions, including holders who may not upgrade their wallets promptly.

Coinbase says preparations cannot wait

Coinbase wants development to begin immediately because Bitcoin’s decentralized governance structure can make protocol upgrades and ecosystem-wide migrations complicated.

Reaching agreement on changes to Bitcoin’s rules and implementing them across wallets, exchanges and other services can take years. Waiting until quantum computers pose an immediate threat could leave users with insufficient time to secure their funds.

The exchange has highlighted six areas that developers should consider when designing Bitcoin’s quantum defenses.

Six recommendations for Bitcoin’s quantum transition

1. Design flexible transaction formats

Coinbase recommends separating Bitcoin’s transaction structure from the signature technology used to authorize spending. This would allow developers to introduce quantum-resistant signatures without redesigning the entire network.

The approach could also make future cryptographic upgrades easier as new technologies emerge. Coinbase cited P2MR (BIP-360) and P2TRv2 as proposals that could offer this flexibility.

2. Enable a gradual security upgrade

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

One possible design is a “1-of-2” arrangement, allowing funds to be spent using either a conventional ECDSA or Schnorr key or a post-quantum key.

This could help users strengthen their protection early without requiring every Bitcoin holder to migrate simultaneously or risk an abrupt loss of access to their holdings.

3. Evaluate stateful signature risks

Some post-quantum signature methods require wallets to maintain records of previously used one-time signing keys. This information, known as state, must be tracked accurately to prevent key reuse.

If a wallet restores an outdated backup or fails to preserve its latest records, it could reuse a signing key and potentially enable an attacker to forge a valid signature.

Although stateful signatures can offer advantages in speed and size, they require careful management. Coinbase recommends evaluating stateless alternatives that eliminate the need for this type of record-keeping.

4. Prioritize reliable implementations

Coinbase believes post-quantum cryptographic systems should be assessed not only for their theoretical strength but also for how securely they operate in practice.

Developers should consider consistent signature verification across platforms, protections against timing-based information leaks, clear configuration options and safeguards against random-number generator failures during signing.

These measures could reduce the likelihood of software vulnerabilities, fraudulent transactions and lost funds.

5. Support multi-party computation

Multi-party computation, or MPC, allows several participants to contribute to cryptographic operations without requiring a single person or device to control the entire private key.

Coinbase considers MPC compatibility important for exchanges, custodians and institutional investors that face persistent security threats.

Post-quantum signature systems that work effectively with MPC could help these organizations strengthen key protection while reducing dependence on a single point of failure.

6. Account for wallets that upgrade late

Some Bitcoin holders may continue using older wallet formats after quantum-resistant protections are introduced. If Bitcoin eventually restricts or disables spending through ECDSA and Schnorr signatures, these users could struggle to access their holdings.

Coinbase recommends examining whether funds stored in legacy wallets could eventually be moved to quantum-resistant outputs. The appropriate method and its associated trade-offs, however, remain unresolved.

The exchange believes this issue should be discussed separately from the technical development of post-quantum signatures so that disagreements about older holdings do not delay the wider security upgrade.

The unresolved issue of lost Bitcoin

Dormant wallets and permanently inaccessible coins pose another challenge. Some holdings belong to people who have lost their private keys, while certain older address formats have exposed public keys that could become vulnerable to quantum attacks.

Coinbase warned that an attacker could potentially exploit these weaknesses before the public becomes aware that a quantum computer capable of breaking existing protections has been developed.

The exchange has not endorsed a specific policy for dealing with lost or abandoned Bitcoin. Instead, it recommends keeping this debate separate from the technical process of improving network security.

Coinbase also stressed that any proposed recovery mechanism must itself be quantum-resistant. Otherwise, a measure intended to protect vulnerable coins could create another avenue for theft.

The exchange’s broader message is that Bitcoin developers should begin building quantum-resistant protections well before the threat becomes immediate, while the future of permanently inaccessible coins should be considered through a separate process.

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