The crypto industry is preparing for a potential security challenge with the anticipated arrival of quantum computing. In response to this potential threat, Coinbase (COIN) has announced the formation of an advisory board composed of external experts. 

Coinbase Chief Security Officer’s Warning 

According to a report from Fortune, the newly established board includes academics from Stanford, Harvard, and the University of California, specializing in fields like computer science, cryptography, and fintech. 

Officially titled the Coinbase Independent Advisory Board on Quantum Computing and Blockchain, the group also features experts from the Ethereum Foundation, the decentralized finance (DeFi) platform EigenLayer, and Coinbase itself.

Jeff Lunglhofer, Coinbase’s Chief Information Security Officer, elaborated on the potential impact of quantum computing on current encryption methods. 

He explained that the encryption protecting wallets and private keys of Bitcoin (BTC) holders relies on complex mathematical problems that would take conventional computers thousands of years to solve. 

However, with the computational power that quantum computers promise—potentially a million times greater—these problems could be solved much more swiftly, Lunglhofer asserted.

Although the security implications of quantum computing are genuine, Lunglhofer reassured that they are not expected to become an immediate concern for at least a decade. The purpose of the new advisory board is to examine the upcoming challenges posed by quantum computing in a measured manner. 

This involves fostering initiatives within the blockchain industry that are reportedly already underway to enhance the resilience of Bitcoin and other networks against quantum attacks.

Blockchain Networks Expected To Implement Larger Keys

At present, Bitcoin secures its wallets through private keys, which consist of long strings of random characters. These keys are accessible to their owners but can only be estimated through extensive trial-and-error computations. 

The advent of quantum computing, however, would make it feasible to deduce private keys using trial-and-error methods in a fraction of the time. 

In response to this looming threat, Fortune disclosed that blockchain experts speculate that networks will implement larger keys and add “noise” to obscure their locations, making them more difficult to detect. Implementing these defensive upgrades across blockchain networks is said to take several years. 

In the meantime, the newly formed Coinbase Advisory Board is gearing up to publish research papers and issue position statements aimed at helping the cryptocurrency industry brace for the impacts of quantum computing. 

Their first paper, which will address quantum’s influence on the consensus and transaction layers of blockchain, is expected to be released within the next couple of months.

At the time of writing, Coinbase’s stock, which trades under the ticker symbol COIN on the Nasdaq, is trading at $225.10. This represents a slight drop of 1.2% over the last 24 hours. 

Featured image from OpenArt, chart from TradingView.com 

On Monday, Coinbase (COIN) announced a new partnership with Circle (CRLC), the issuer of the USDC stablecoin, to create what they claim to be “the world’s first fully on-chain national economy” in Bermuda. 

Coinbase, Circle To Build New Digital Asset Infrastructure 

Under this initiative, Coinbase and Circle are set to provide digital asset infrastructure and enterprise tools to various stakeholders, including the Bermuda government, local banks, insurers, and small and medium-sized enterprises.

Bermuda’s Premier, E. David Burt, commented on the initiative, stating, “This initiative is about creating opportunity, lowering costs, and ensuring Bermudians benefit from the future of finance.”

Government agencies are expected to begin piloting payments using stablecoins such as Circle’s USDC, while financial institutions are set to adopt tokenization tools. Residents will also have the opportunity to engage in nationwide digital literacy programs that foster understanding of the emerging financial landscape.

The announcement highlighted that transitioning to an on-chain economy is anticipated to include reduced transaction costs and improved access to global finance, facilitated by modern digital wallets and infrastructure with Coinbase and Circle’s support.

Bermuda’s Crypto Landscape

Bermuda has positioned itself as a leader in the digital asset space, having established its own regulatory framework for digital assets as early as 2018. This approach has attracted numerous companies looking for regulatory clarity amid tightening regulations in other regions. 

The country’s regulatory framework currently supports a diverse range of regulated digital asset activities. The Bermuda Monetary Authority (BMA) is responsible for licensing crypto exchanges, yield-bearing stablecoin structures, and decentralized finance protocols under a cohesive supervisory regime. 

This structure enables tokenized money market funds to operate within the jurisdiction, and even allows digital-native insurers to manage reserves, collect premiums, and process claims using cryptocurrency, all while adhering to traditional financial oversight.

Bermuda’s focus on digital finance has generated significant business interest. Notably, in late 2024, the BMA issued the world’s first license to a decentralized derivatives exchange governed by a Decentralized Autonomous Organization (DAO). 

The jurisdiction also accommodates regulated derivatives operations linked to major exchanges, including Coinbase and Kraken, showcasing ongoing institutional confidence in its clear regulatory framework. 

Furthermore, Bermuda has attracted utility-driven firms like Haycen, which utilizes specialized stablecoins to offer faster trade financing, effectively bridging gaps often encountered by conventional banks.

In addressing the risks associated with digital finance, Premier Burt acknowledged that no financial system can be fully insulated from risk. “In life, you can’t insure anything,” he stated in an interview. 

He emphasized the importance of policymakers balancing caution with humility, allowing room for innovation while maintaining a robust regulatory environment in this still-evolving sector.

Featured image from DALL-E, chart from TradingView.com 

As the January 15 markup of the crypto market structure bill—known as the CLARITY Act—draws closer, reports indicate that Coinbase (COIN) is reconsidering its support for the legislation. 

A Monday report from Bloomberg suggests this shift in position is contingent on whether the anticipated bill includes provisions beyond enhanced disclosure requirements tied to stablecoin rewards.

High Stakes For Coinbase

The CLARITY Act is expected to be marked up in at least one Senate committee this Thursday, and Coinbase’s potential withdrawal could have significant implications for the bill. 

A source familiar with Coinbase’s stance told Bloomberg that the exchange would re-evaluate its support if the legislation veers too far from its interests, particularly regarding stablecoin incentives.

Some insiders suggest the bill might restrict the ability to provide rewards to regulated financial institutions, a move that aligns with the banking sector’s concerns about losing deposits to crypto platforms.

Coinbase currently holds applications for a national trust charter that could permit it to offer those kinds of rewards under regulatory rules. However, many crypto-native firms are pushing back against potential restrictions, arguing that such measures could disrupt competition in the market.

The stakes for Coinbase are high, as rewards programs play a crucial role in its business model. The exchange allows users to earn 3.5% rewards on Circle’s USDC holdings. 

Should the market-structure bill include bans on these incentives, fewer users might choose to hold stablecoins on the platform. This could jeopardize an anticipated revenue stream projected at $1.3 billion in 2025, according to Bloomberg.

Banking Vs. Crypto

The GENIUS Act, passed into law in July of last year, prohibits stablecoin issuers from offering interest on token holdings, and does not prevent third-party partners like Coinbase from providing rewards tied to customer balances. 

The banking industry, however, argues that allowing exchanges to pay such rewards could negatively impact bank deposits and, consequently, community lending. 

As reported by Bitcoinist over the past month, the American Bankers Association (ABA) has voiced concerns that this situation could displace “billions” from local lending, allegedly harming small businesses and households.

In contrast, Faryar Shirzad, Coinbase’s chief policy officer, has argued that maintaining rewards tied to stablecoins is crucial for preserving the dollar’s dominance, especially in light of China’s announcement to start offering interest on its digital yuan.

Banking Lobby Fights Back

A potential compromise being discussed would permit only licensed banking entities or financial institutions to provide rewards on stablecoin balances. 

Recently, five crypto firms, including Ripple, Circle, and Paxos, received conditional approvals from the US Office of the Comptroller of the Currency (OCC) to become national trust banks, a move met with opposition from the banking lobby. 

If restrictions are indeed imposed, the report suggests that this could lead to creative workarounds as crypto firms seek alternative ways to reward customers. 

Featured image from DALL-E, chart from TradingView.com