IN TODAY'S ISSUE:
- We examine the implications of recent advancements in quantum computing from Google for Bitcoin.
- Bitcoin Core set for changes to its data policy following contentious debate.
- With stablecoins being the current rage, we look at recent development and some overlooked obstacles to their adoption.
Quantum Factoring Gets a Boost, But Bitcoin Isn’t Broken Yet
A few weeks ago, Google’s quantum computing and cryptography researchers unveiled a significant breakthrough in quantum factoring—a method that enhances how efficiently quantum computers (QCs) can factor large integers, which is central to breaking many classical encryption systems. While this progress does not pose an immediate threat to Bitcoin, it underscores the accelerating pace of advancements in QCs and highlights why organizations and technologies must transition to post-quantum cryptography (PQC).
Quantum computing continues to be regarded by many investors as the single greatest long-term existential risk to Bitcoin. Because of this, we believe it is important to monitor and contextualize key developments in the field.
The recent update from Google researchers revealed optimizations to Shor’s algorithm that reduce the QC resources required to break RSA by a factor of 20. These improvements come from enhanced factoring algorithms and more efficient quantum error correction schemes, making Shor’s algorithm more effective at breaking RSA, though still far from being viable on current QCs.
RSA, a widely used public-key cryptographic algorithm, is not typically employed to encrypt or sign entire messages directly. Instead, it is primarily used for key transport or key encapsulation, enabling secure establishment of a shared secret over insecure channels. While RSA remains prevalent in legacy systems, modern protocols—such as HTTPS—rely on Elliptic Curve Diffie-Hellman (ECDH) for key exchange due to its efficiency and effectiveness.
Unlike RSA, which relies on the computational difficulty of factoring large integers, ECDH is based on the Elliptic Curve Discrete Logarithm Problem (ECDLP), a hard problem in elliptic curve cryptography rather than integer factorization. Although both RSA and ECDLP can be broken by Shor’s algorithm running on sufficiently powerful QCs, ECDLP is a distinct mathematical problem and is not affected by Google’s specific factoring advancements.
Bitcoin uses the Elliptic Curve Digital Signature Algorithm (ECDSA) or Schnorr for digital signatures. Like ECDH, ECDSA and Schnorr are based on ECDLP and, therefore, are also unaffected by recent improvements in quantum factoring techniques. Nevertheless, ECDSA and Schnorr would likely be vulnerable to QCs sometime in the future.
The U.S. National Institute of Standards and Technology (NIST) has been leading the standardization of PQC algorithms since 2016 and has already selected candidates for widespread adoption: two PQC algorithms for Key Encapsulation Management (KEM) and three for digital signatures, totaling five PQC standards.
- CRYSTALS-Kyber for KEM, with HQC as an alternate
- CRYSTALS-Dilithium and SPHINCS+ for digital signatures, with FALCON expected to be standardized as an additional option.
While PQC digital signature algorithms already exist and could theoretically be deployed on Bitcoin, their adoption carries significant economic and technical implications, even if introduced in the future. Practically speaking, these algorithms produce much larger keys and signatures and require more time to sign and verify. This would impact Bitcoin’s performance, block space efficiency, and ultimately how users interact with the network.
Quantum computers may still be years away, but the good news is that PQC algorithms continue to advance, offering a path to proactively protect Bitcoin and its users.
Bitcoin Core Set for Update Following Contentious Debate
Two weeks ago, the developers of Bitcoin Core, the most widely used version of Bitcoin software, merged a technical update following intense and lengthy debate. The change removes the default limit on OP_RETURN, a function that allows users to embed arbitrary data—such as text, timestamps, or asset metadata—into Bitcoin transactions.
The debate was both technical and philosophical, marked by accusations of censorship and suppression of dissent. On one side were “purists” who argued that the blockchain should remain focused on financial transactions and were already frustrated by the rise of Ordinals and data-heavy Taproot inscriptions. On the other side were pragmatists who supported lifting the cap, pointing out that miners already accept larger OP_RETURN outputs and that formalizing this behavior would encourage use of a clean, prunable data channel rather than more harmful or UTXO-bloating alternatives.
As a history lesson, the OP_RETURN opcode was introduced in Bitcoin Core 0.9.0 in March 2014 to give users a way to embed arbitrary data in transactions, without relying on older, more harmful methods that polluted the UTXO set, such as crafting fake outputs, which were already happening at the time. To prevent abuse and keep data usage modest, the function was limited to one OP_RETURN output per transaction and capped at a 40-byte payload.
In October 2015, Bitcoin Core 0.12.0 raised the payload limit to 80 bytes, enabling more expressive use cases like asset metadata, timestamping, and identity anchoring, while still aiming to discourage excessive on-chain data storage.
In 2023, developer Casey Rodarmor (creator of Ordinals) discovered a way to use Taproot’s scripting flexibility to embed virtually unlimited amounts of data inside Bitcoin transactions. This technique bypassed OP_RETURN entirely, using witness data instead. It sparked a deep controversy: were these transactions an abuse of the system—spam enabled by a clever workaround—or a valid evolution of how Bitcoin can be used?
Before the recent OP_RETURN policy change, large OP_RETURN outputs and Ordinals inscriptions were valid under Bitcoin’s consensus rules but considered non-standard. This meant they weren’t relayed by nodes running default Bitcoin Core settings, and miners typically needed to run custom configurations or accept direct submissions to include them in blocks.
Under the upcoming version of Bitcoin Core, set for release in October, these transactions will be relayed by default, aligning node behavior with what many miners were already doing. As a result, miners will no longer need custom setups to include larger data-embedding transactions.
The default change still hasn’t sat well with some Bitcoiners. Bitcoin Knots, an alternative full node implementation maintained by dissenter Luke Dashjr, has gained traction by explicitly rejecting the OP_RETURN policy update. It now accounts for roughly 10% of the Bitcoin nodes on the network. These nodes won’t relay or accept transactions that contain oversized OP_RETURN outputs, effectively creating a parallel relay policy that enforces stricter standards and filters out what some see as blockchain spam.
Even if the OP_RETURN cap is lifted, users are unlikely to abandon Ordinals. Thanks to the witness discount in fee calculation—where witness data counts for only a quarter of a virtual byte—Ordinals will continue to offer a more cost-efficient option for embedding larger amounts of data in transactions.
Stablecoins Take Center Stage
Stablecoins have taken center stage in recent months. With the Senate’s passage of the GENIUS Act on stablecoin regulation, Circle’s high-profile IPO, and growing speculation about new players—from banks and retailers to tech giants—entering the space, it’s a timely moment to unpack the evolving dynamics of this important corner of the digital asset industry.
Legislation Marches Forward
The GENIUS Act, the Senate’s newly passed stablecoin legislation, garnered broad bipartisan support this week. It outlines a federal regulatory framework for stablecoin issuers, while allowing state supervision for smaller entities under a specified size threshold. Despite its passage, the bill sparked debate over several key omissions, including the exclusion of DeFi protocols, limited AML and KYC requirements for foreign issuers, and the absence of mandates to share interest income with users. With a $255 billion market cap, stablecoins remain one of blockchain’s standout use cases. This legislation could provide the regulatory clarity needed to accelerate their growth. The next move lies with the House, which could pass a version (modified or unmodified) of the GENIUS Act, or merge it with existing legislation up for consideration in the House, like the STABLE Act of 2025.
Circle Continues to Zoom High After IPO
One of the standout events of the second quarter has been Circle’s IPO. The company, which issues the USDC stablecoin in partnership with Coinbase as its primary distribution partner, debuted at an IPO price of $31 per share. Since going public on June 4th, the stock has already surged 545% and continues to push higher. USDC currently holds the position as the second-largest stablecoin, with approximately 24% of the market. It still trails significantly behind the leading stablecoin, Tether (USDT), which dominates with around 61% market share.
Stablecoins – Reminiscent of the Wildcat Banking Era?
With a federal regulatory framework for stablecoins on the verge of enactment, traditional banks, big-tech platforms, and major retailers have all signaled interest in launching their own dollar-pegged tokens. Media reports name JPMorgan, Amazon, and Walmart among the firms exploring their own stablecoins. Coin Market Cap already lists over 100 distinct stablecoins with identifiable market caps, meaning these new entrants would already be entering a crowded field.
The Cambrian explosion of stablecoins that is likely to take place has a very Free Banking or “Wildcat” banking (1837 – 1863) era feel to it, when thousands of state-chartered banks issued their own notes that acted as currency. Those paper claims often traded at varying discounts outside a bank’s home region. But lax supervision led to frequent runs and ultimately the National Banking Acts (1863 & 1864) and, later, the Federal Reserve System (1913).
That’s unlikely to happen today given the federal regulations being put in place, but fragmentation is a real possibility. A merchant might choose to accept USDC but decline a new “Amazon USD,” forcing consumers to juggle multiple balances or rely on intermediaries to swap one token for another.
Credit and Rewards: Two Often Overlooked Stablecoin Obstacles
While stablecoins offer clear advantages, particularly for merchants or remittance applications, two major obstacles could impede their widespread adoption for everyday commerce: credit and rewards.
Originally, stablecoins emerged as a workaround for crypto exchanges that lacked access to the US banking system. Without traditional bank rails, offshore exchanges needed a way to facilitate client inflows and offer a reliable quote currency. In the early days, bitcoin often served as the primary base pair for altcoins. Stablecoins like USDT filled this void by offering a dollar-pegged medium of exchange native to crypto markets.
For merchants, the appeal of accepting stablecoins is easy to see: they can bypass high credit card processing fees, improving margins and cash flow. But for consumers, the trade-offs are more nuanced. Paying with a stablecoin means forgoing both the credit extended by card issuers and the reward points - users are effectively paid to use their credit cards. In this sense, users would need to pre-fund their wallets with stablecoin balances before making purchases and forgo to the rewards given to users for their purchases. Merchants may entice stablecoin users with discounted pricing, just like some do with cash compared to credit cards.
To be sure, many people, both in the U.S. and especially in emerging markets, lack access to credit cards, making stablecoins an inclusive alternative. However, the absence of built-in credit and rewards are often underappreciated in discussions about the future of stablecoins in consumer payments.
Market Update
Bitcoin declined 2.4% over the past week in a market largely defined by tight trading ranges. Initial volatility was triggered by renewed geopolitical tensions between Israel and Iran, which briefly unsettled risk assets. US equities and bitcoin both pulled back, while gold rallied and oil prices spiked. However, as the week progressed, gold’s momentum faded and both equities and bitcoin rebounded modestly.
Bitcoin ETF inflows have remained strong, averaging $301 million per day over the past 8 trading sessions. With bitcoin futures basis still relatively subdued, hovering in the mid-to-high single digit percentages, it appears that much of the activity is being driven by spot purchases, rather than the basis arbitrage employed hedge funds.
Both realized and implied volatility continue to drift lower, despite macro catalysts like the Israel-Iran conflict and the FOMC’s rate decision, which left interest rates unchanged. As we move into the summer, markets appear to be settling into the seasonal “doldrums.”
Looking ahead, the next potential catalyst for the crypto market is the SEC’s decision on several altcoin ETFs. While the final deadline on the conversion of multi asset GDLC is only a few weeks away, current regulatory activity suggests a decision on the Solana (SOL) ETFs may be the first to materialize.
Important News This Week
Investing:
Fold Secures $250 Million Equity Purchase Facility to Expand BTC Treasury - The Block
Regulation and Politics:
Stablecoin Bill Passes the Senate with Bipartisan Support - Blockworks
Companies:
Semler Scientific Appoints Joe Burnett as Director of Bitcoin Strategy; Targets Owning at Least 10,000 Bitcoins by Year-End 2025 and 105,000 by Year-End 2027 - Semler Scientific
Crypto Group Tron to go Public After US Pauses Probe into Billionaire Founder - FT
JPMorgan Files Trademark for Digital Asset Platform as Wall Street's Crypto Embrace Continues - CoinDesk
Dominant Chinese Makers of Bitcoin Mining Machines Set Up US Production to Beat Tariffs - Reuters
Kraken Offers Bitcoin ‘Staking’ Yield Via Babylon Without Wrapping or Lending - The Block
Upcoming Events
Jun 27 - CME expiry
Jul 2 - Final SEC deadline for decision on GDLC ETF conversion
Jul 8 - 90-day tariff suspension ends
Jul 15 - CPI release
Jul 22 - EO Working Group report deadline
Jul 30 - FOMC interest rate decision
