Quantum computing breakthroughs are accelerating faster than previously expected and could pose a serious near-term threat to cryptocurrency security, according to Citi.
The bank's latest digital asset research note warns that advances in quantum technology are shortening the timeline for when such machines could crack the encryption that underpins both digital assets and broader internet infrastructure.
Quantum computers work by exploiting the behaviour of subatomic particles to perform calculations that would take conventional machines millions of years, and sufficiently powerful versions could theoretically break the cryptographic codes that keep cryptocurrency wallets and transactions secure.
Citi said the risk is unevenly distributed across the sector.
Bitcoin is considered particularly vulnerable because its decentralised governance structure makes software upgrades slow and difficult to coordinate, leaving it exposed for longer as quantum capabilities improve.
Proof-of-stake networks such as Ethereum, which use a different method of validating transactions, are better positioned to adapt but present a larger attack surface, meaning there are more potential points of vulnerability for quantum-equipped adversaries to exploit.
Citi said it expects the sector to evolve through the adoption of post-quantum cryptography, a new generation of encryption methods designed to resist quantum attacks, but urged investors to monitor the shifting timeline closely.
On broader market conditions, the bank struck a more positive tone, noting that sentiment has improved since last month with cryptocurrency market capitalisation approaching $3 trillion, stablecoin issuance expanding again and inflows into Bitcoin exchange-traded funds turning positive.