Blain’s Morning Porridge – December 4th 2023: Quantum Computing and what it might mean for Bitcoin vs Gold
“I think there is a world demand for about five computers”
Yesterday IMB announced a new breakthrough in quantum computing. One day Qubits will make crypto obsolete. A new revolution in computing is coming, and it could well be IBM that leads it!
Sometimes you just have to laugh.
This morning I really should be writing about why markets seemed to stall yesterday – as the everything rally on the back of rising expectations of rate cuts sooner rather than later took a check. Why? Maybe because nothing is certain except uncertainty and change… And another big change is coming to markets..
But first I have to share some fun and games from yesterday…
Monday’s Porridge was all about Gold. I got a call from the BBC asking me to appear on the Telly to discuss why Gold had hit a new record high (in dollar terms), what was driving demand for the yellow stuff, and what was behind recent gains in Bitcoin. Great fun as always. (My daughter was actually watching the show, and said she was not entirely mortified by my performance – which I shall take as a positive sign.)
I explained Gold is a real thing. I talked about how demand is fuelled by uncertainty, how it may be a decorative commodity but through the millennia it’s established clear value, is an effective inflation hedge, how dollar weakness makes it cheap, and how certain central banks have been buying gold as a Treasury alternative. Then we talked Bitcon – where I just figuratively shook my head. I said: “Crypto-currencies are worth whatever the last fool to buy them has been fooled to pay.”
Froth and wildly unlikely speculative belief in the latest new, new thing has been a feature of markets since year dot. Tulip mania, South Sea bubbles, Dot.Coms, are all examples. Humanity may be “oh-so-clever” but we are prone to believing six or seven impossible things before breakfast – especially if they are accompanied by lots of impenetrable jargon, promises of easy wealth and backed up by meaningless “mathematical” proofs and profit forecast promises. When they inevitably tumble, no one ever learns the lesson.
It means folk desperately hoping to get rich quick will readily believe a company renting office space by investing long to rent short is a work of technological genius. Nope. It was a flollopping dull and boring office rental company that’s gone bust. Or that some obscure nameless genius has invented the perfect currency – that only very clever people can understand…. Which is, of course, the basis of the fairytale: The Emperor’s New Clothes.
Even fleas have fleas – which is how Bitcoin and cryptocurrencies eventually spawned stage 2 conflabulations like NFTs and Dogecoin.
I’ve never made any secret of my rejection of Bitcoin and the other crypto-currencies – they are purely speculative hype-driven constructs, driven by convoluted “justifictions”, tortured origin stories, and without any real usage case or particular merit. Sure I get the concept – but ask the question… Why? A few years ago I offered £100 to anyone who could explain anything legal Buttcon can do that isn’t already done by cash or gold.
I repeated my offer on the BBC, yesterday.
Big Mistake. Crypto trolls watch daytime TV. From the darkest corners of the internet emerged the Bitcon shills and trolls.. My email was bombarded by claims for the £100.
- Some were amusing: “Bitcoin p*sses off Bill Blain and other so-called monetary experts and Bitcoin haters in a way real money simply can’t do.” I am almost tempted to pay out on that one – but money peeves me also.
- Others claim Bitcoin is a great way to transfer money internationally, faster, cheaper and untraceably – I disallowed that on the basis you first have to transfer cash into a digital wallet then transact through an unregulated system with a history of nefarious actors, before again converting bitcoin back into cash, subject to transaction risks and the massive volatility of bitcoin during he trip. (I use Revolute. Banking is slow and expensive – but it’s generally safe, enforceable, regulated and subject to record.)
- Others missed the point about legality – there were multiple claims that by “facilitating autonomous anonymous transactions” bitcoin does something cash doesn’t. I rejected this – because anonymous bitcoin transactions allow the facilitation of payments on the back of illegal activities. Tell you what – 10 pence to anyone who can give me a case where anonymous transactions are a positive thing which doesn’t involve charity?
At that point.. one of the trolls – a Mr Dinky according to his email – threatened to sue me. He claims my rejection of anonymous transactions is a breach of the contractual obligation I had entered into through my televised offer to pay £100 for a unique use of Bitcon. He is going to sue the BBC as well.
He certainly knows how to send emails. He sent me a number of quasi-legal threats: “In your communication dated today you expressed scepticism regarding Bitcoin’s legal capabilities, particularly highlighting concerns that its anonymous facilitation may encourage illegal activities. Your specific statement reads, “anonymous facilitation allows illegal activities to be financed.” I must emphasise that this assertion is concerning and potentially damaging to my reputation. It is crucial to note that my assertion regarding Bitcoin’s capabilities was focused on its legitimate and lawful functions within established regulatory frameworks.” Blah, blah, blah…
He rambled on that gold and cash are also used to facilitate illegal activity, and that he expects immediate payment of the £100 plus undisclosed damages… Take the tablets Mr Dinky…
Of course, any discussion about the future of Bitcoin is utterly pointless.. Its going to be obsolete in a decade or two… And so might the whole of current computing infrastructure….
Time to buy…. IBM?
Yesterday IBM announced the first quantum computer with more than 1000 Qubits. That’s not particularly powerful – but in a few years time, its 100% likely quantum computers will have expanded in power quadratically, reaching the stage where Crypto digital signatures can be forged. The mathematical power of quantum computing will be used to break the underlying asymmetric cryptography of cryptocurrencies – allowing bad actors to empty wallets, and state agencies to trace transactions. (Some believe the FBI and CBI are already doing so… despite the algorithms required to derive a private key from a public key requiring vast amounts of power and time..)
All of which begs the question – why not use tried and trusted cash to transact (probably through state controlled digital currencies) and accept that real gold is probably better than convoluted digital gold in the form of vulnerable buttcon? Like any manufactured thang – bitcon has embedded technological obsolescence.
Going back to IBM and its latest iteration of Quantum Computing: it’s all terribly, terribly complex. I could chuck in some words like quantum phenomena, entanglement and superposition (which apparently allow multiple qubits to exist in multiple collective states at the same time), but I don’t have a breeze about what any of that actually means. What I do know is computers will become as powerful as required to be very quickly.
The issue for quantum computing is a Qubit is not stable. With the competency of a monkey trying to explain modern art, let me explain: to make Qubits stable and reduce errors, computer scientists reckon you might need a 1000 Qubits to create a stable logical qubit. (With me so far?) That means a quantum computer powerful enough to break Bitcon will require in excess of 15 million Qubits. And that will happen.
Other solutions will require a complete re-write of way superconducting chips are designed where Qubits are connected to 6-7 other Qubits rather than just 2-3 transistor connections in current chips.
I read through the IBM announcement yesterday – and this is critical for firms like Nvidia and ARM: “it has become clear that we must go beyond the traditional circuit model and take advantage of parallelism, concurrent classical computing, and dynamic circuits. We have ample evidence that, with tools such as circuit knitting, we can enhance the reach of quantum computation, and new quantum algorithms are emerging that make use of multiple quantum circuits, potentially in parallel and with concurrent classical operations. It is clear that a heterogeneous computing architecture consisting of scalable and parallel circuit execution and advanced classical computation is required.”
I think that means yet another computer revolution is on its way… And could it be IBM that leads it? This morning’s opening quote is the classic IBM founder Thomas Watson’s comment in 1943 massively under-estimating the computer revolution. Bill Gates once said “640k of memory should be enough for everyone!”
Makes you wonder..…
Five Things to Read This Morning..
FT IBM claims Quantum Computing research milestone
FT US deficits are testing investor patience
WSJ Green Investors Were Crushed. Now It’s Time to Make Money
WSJ China’s Colossal Hidden-Debt Problem Is Coming to a Head
BBerg Moody’s Cuts China Credit Outlook to Negative on Rising Debt
Out of time, and back to whatever it is I have to do now…
Bill Blain
Strategist and Author of the Morning Porridge
7 Comments
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Brilliant comment today, Bill. Thanks.
When a Quantum computer even gets within a sniff of cracking AES (which is 256 bit) the world’s financial system will collapse.
What’s needed is a digital one time pad alternative. There’s only one company in the world that has perfect digital random number generation and it’s kinda needed yesterday.
Michael Saylor shrugs off the quantum computer Bitcoin question by saying all major businesses (Apples , Google etc.) are subject to the same level of threat. Not convinced by his argument as Bitcoin’s code is unchangeable while those companies can adapt and develop defensive measures against quantum computer attacks.
While I grant you that gold can perform the same function as Bitcoin (and indeed has done so over several centuries) – there is one aspect of Bitcoin (or other stablecoins for that matter) – the fact that they are not tangible (and therefore can’t be stolen – provided they are stored in “cold wallets” – as in they are not brought onto exchanges) confers an advantage over gold – as long as the “code” for retrieving one’s bitcoin is stored safely – can even be memorized and passed on by word of mouth. While “exchanges” like Binance and Coinbase are susceptible to hacks, cold wallets are not. Gold in contrast, because it is in physical form – has to be stored somewhere – vaults (banks/authorities can seize your gold – but cannot seize bitcoin).
The second assertion, conflating “anonymity” with “criminality” – which all critics of Bitcoin seem to do, have got it totally wrong. The moment the US “weaponized” the USD – by seizing Russian, Iranian and other individuals’ USD bank balances – the “use case” for something other than currencies became clear. Money has to be strictly “neutral” – somehow assigning “virtue” to the entity doing the “sanctioning” (in this case the US) and “criminal intent” on the entity/country/person being sanctioned (Russia/Iran) is subjective – the Russians/Iranians and yes, even the Chief Executive of Hong Kong – would beg to differ. For a currency to be acceptable – even enemies have to agree to accept that “unit of value” in settlement of obligations (agree – gold fulfils – and did fulfil that function during WW II – via the BIS in Basle – but if there is an “intangible” unit of value that performs the same function as gold, the intangible unit is better, for the reasons explained above.)
There are other basic reasons for anonymity – you have “rapacious” governments, who can instruct banks to close accounts/seize money/ deny access to the banking system to individuals – merely because they are seen as dissidents who for one reason or another have run afoul of the authorities – for your information, HSBC and Citibank in Hong Kong can close (and indeed have closed) bank accounts of those “advocating democracy”/ etc. etc, on the instructions of the authorities – so why should one trust the banking system anywhere? (Again, gold is an alternative – but a totalitarian government can just as easily seize your gold – wherever it is stored – as “freeze” you out of the banking system). And from the view of Russia and Iran (and given the direction of travel – now China), it is the US which is the “rapacious” predator…. sure, they can (and have) bought gold – but gold has to be shipped, can be interdicted, stolen along the way to its destination – etc etc – not possible with crypto.
Now – the case could be made (and has been) that within the crypto universe, “stablecoins” like Tether (because they are pegged 1-1 to the USD) are better than bitcoin – but that is not an argument against crypto per se (like the one you are making). Despite the efforts of all and sundry to shut down Tether – it’s not only survived, but continues to thrive.
So what then, accounts for the enduring popularity of Bitcoin – and contributed to its recent rise? The same geopolitical tensions that have driven up the price of gold – also, for a move of this magnitude, official actors (possibly China, Russia and Iran) are also buying Bitcoin in quantity – it is inherently unknowable who is doing the buying – if it’s done off-exchange (even on exchange, it’s still pretty hard – but if there are flows to a particular wallet(s), these can be traced).
So what now? For the reasons I have outlined, the Bitcoin train has left the station (irony of ironies, it is probably the best performing asset class this year – up over a 100% with minimal volatility – so a brilliant performance even on a risk-adjusted basis!). By the way, it has fallen about 80% from its highs and always made new highs – 5 times already! The fall from 65,000 to 13,000 (when everyone – including supposedly clever folks like Charlie Munger was exulting at Bitcoin’s – supposed – demise), is merely the 6th such episode. On past form, bitcoin is set to peak between 160,000 and 300,000 (why the wide range – on a logarithmic chart, that’s a tiny blip – the first 80% fall recorded by bitcoin was from USD 3.00 to 40 cents….take a look at a long-term bitcoin chart – and there’s a beautiful “sine wave” of progressively extended “rising trends” punctuated by elongated “falling trends” – each one “gentler” and “longer lasting” than the last – on a log scale – suggesting my target will be reached in around 5 years).
So advice to folks like yourself – get on board the train or risk getting run over – again, I do not much care for the 100 pounds on offer – I would feel much better being vindicated if as I expect, my call turns out to be right – one (having been a trader) is unemotional about these things!
Best,
Vijay
P.S. Yes, I will concede Bitcoin – like dollars, Euros, Swiss francs, gold etc IS used for a wide range of criminal transactions – but as I have demonstrated, suggesting that “criminality” is the ONLY use case is preposterous. Incidentally, one more point I forgot to make – the more “cash-less” a society gets (read – as in authorities – including those in “dodgy” jurisdictions – being able to track your every move – even when they have no business doing so), the more the Bitcoin use case grows!
I read your comment about “crypto” having enforced obsolesence built into it “A reference to 15 million Qbits” needed to break crypto codes (which will happen eventually)- makes no sense, because long before that threshold is reached, every single bank account globally would be emptied – presumably because whatever protections a bank account enjoys (using today’s technology), surely the technology thresholds capable of “hacking” that account are considerably lower than that used by crypto?
(By the way, anecdotally, just as you suggest that the intelligence agencies already have the capabilities to “hack” into crypto, there are enough stories of banks paying ransoms – obviously unpublicized – to state and non-state actors who have threatened mayhem).
Not sure that a “theoretical” argument about crypto being “hackable someday” is an argument against it – for the reasons above.
I concede that this is very interesting, so thank you.
Gold is something that is valued in fiat.
Bitcoin is nothing that is valued in fiat.
I agree that nothing can’t be stolen. -:)
Fascinating article Bill. I can understand some of the Quantum mathematics without being able to relate it to reality, but then I guess that is the essence of Quantum maths, it isn’t real it just is. I can see the step change it is going to make to how we solve problems. Sequential calculations leading to a solution isn’t going to cut it when there can be parallel operations, simultaneous operations in different parts of the universe, all needing to co-ordinate. It is going to be a bit like using imaginary numbers in equations, we know that we can get from A to B using imaginary numbers but we only know in theory, they are called imaginary numbers for a reason. Using quantum routes is going to be similar. Our little brains will need to expand to use it well – which they will. It is very exciting.
The effect on markets will be that we will have more information faster, but as markets aren’t governed by mathematical rules it won’t make them easier to read. More information can lead to more confusion, we will still need the bond traders who can read people rather than maths.
Vijay, believing that Bitcoin will reach new highs because it always has is not logical. We can only say that something is inevitable in retrospect, and even then it is usually disproved, usually just after the prediction is made. One expects a bubble to float about going higher and lower in unpredictable ways – until it goes pop. Bitcoin hasn’t reached mass acceptance by the general populace that would indicate it that is a long lasting part of life, it could still be a bubble, how much are you prepared to gamble?