Quantum Risk Mitigation for a Crypto Custodian

Challenge

A financial firm specializing in digital asset custody (securely holding cryptocurrencies and other blockchain-based assets for institutional clients) was increasingly worried about the implications of quantum computing on its core business. As a custodian, the firm’s credibility rests on its ability to safeguard private keys that control digital assets worth billions; if those keys are compromised, the assets could be irreversibly stolen. They knew that most cryptocurrencies (Bitcoin, Ethereum, etc.) rely on cryptographic algorithms (like ECDSA and RSA) that could be broken by a future quantum computer. In particular, they foresaw scenarios such as a quantum attacker deriving private keys from public wallet addresses (which are exposed on blockchains) or cracking the encryption used in their own internal systems and HSMs that guard client secrets. The challenge was that no blockchain had yet migrated to quantum-safe algorithms, so the firm couldn’t unilaterally change the crypto protocols, but they also couldn’t afford to just wait and do nothing. They needed to prepare proactively: to protect the keys and assets under their stewardship from any quantum-induced insecurity, and to assure clients (and regulators) that their funds would remain safe in the long term. The firm engaged us to devise a realistic quantum risk mitigation strategy that could be implemented in stages, considering the evolving nature of both blockchain tech and quantum tech.

What We Did

We tackled this on multiple fronts – securing internal systems, planning for protocol-level changes, and engaging in the broader industry dialogue.

• Internal Systems and Key Management: First, we reviewed the custodian’s existing key management architecture. They used hardware security modules (HSMs) to generate and store private keys, and multi-signature schemes with shards of keys distributed geographically for resilience. All communications between their data centers, HSMs, and client interfaces were encrypted with standard TLS and their data backups were encrypted with strong classical algorithms. We performed a quantum safety audit on these components. The HSMs at that time did not support post-quantum algorithms, but they had firmware upgradeability. The TLS connections relied on algorithms like ECDHE (elliptic curve Diffie-Hellman) for key exchange and AES for data, which could be intercepted and decrypted later by a quantum adversary capturing traffic now.

  We collaborated with their security engineers to implement quantum-resistant enhancements internally:

  • We helped them test and then enable (where possible) hybrid cryptographic handshakes for internal TLS connections. For example, between their application servers and databases or between geographically separated data centers, we configured TLS libraries to use a combination of classical and PQC key exchange (leveraging algorithms like NTRU or Kyber alongside ECDHE). This ensured that even if someone was recording their encrypted traffic, when quantum arrives, at least half of the key agreement (the PQC part) remains secure, preventing decryption.

  • We also worked with their HSM vendor. We knew from industry roadmaps that certain HSMs were planning to introduce support for post-quantum algorithms. We facilitated early access to a beta firmware for their HSM that could generate and utilize a Dilithium (a post-quantum signature) key pair. In a controlled test environment, we demonstrated that the custodian could use this to create a quantum-resistant “wrapper” around their regular keys. In practice, this meant their master recovery keys (used as a root of trust in their hierarchy) were additionally signed or encrypted with a post-quantum scheme, adding another layer of security.

  Additionally, we set up a quantum-secure vault prototype: we took some of their cold-wallet backup data (which was encrypted with classical AES) and re-encrypted those files with a secondary layer of a post-quantum cipher. This way, even if those backups were somehow stolen, an attacker would need a quantum computer plus break two layers (one classical, one PQC) to get anything. The performance impact of adding this second layer was minimal (since cold backups are rarely accessed), so we recommended this be rolled out for all long-term stored keys and data.

• Cryptocurrency Protocol Preparedness: Knowing that the wider crypto ecosystem would need to adapt, we helped the firm formulate a plan for migrating customer assets to quantum-safe keys when the time is right. This involved:

  • Address and Key Rotation Strategy: We advised the custodian to start encouraging and planning for more frequent rotation of public addresses where feasible, and to eventually migrate assets to new addresses derived from quantum-safe keys (once those become available on each blockchain). This is tricky because, for example, Bitcoin and Ethereum at that point did not support PQC signatures. But we created an internal playbook for them: e.g., as soon as Bitcoin has a fork or soft-fork that introduces a PQC-based address format, how to systematically move all UTXOs (unspent outputs) under their custody to those new addresses. Similarly for Ethereum or any chain – basically a preparedness to do a mass rotation.

  • Client Communication: We drafted communication materials and FAQs for their clients explaining, in relatively simple terms, the quantum threat and the custodian’s approach. This included assurances that the custodian is actively testing quantum-safe technologies and will take necessary actions to move assets to safety at the appropriate time. The aim was to build client trust by showing they are ahead of the curve. We emphasized language like “your assets are safe with us now and in the future, because we’re taking steps today to protect against tomorrow’s threats.”

  • Policy and Compliance: We integrated quantum risk into their security governance. For example, their policy now states that any new cryptographic system or library considered should support NIST-approved post-quantum algorithms. We also updated their disaster recovery plan with a hypothetical scenario: “What if a sudden breakthrough made current crypto unsafe?” – and outlined how they would respond (pause withdrawals, migrate keys, etc., in a controlled manner). This scenario planning meant if panic ever hit the crypto markets over quantum (say a news event), they’d have an action plan ready, which also reassured regulators to whom we showed the plan.

• Industry Collaboration: We recognized that a custodian can’t solve the whole problem alone; it requires the whole crypto community to transition. Therefore, we helped the firm joining relevant alliances and working groups. We even helped ghostwrite a technical position paper.

• Randomness and Entropy Improvements: As an ancillary improvement, we integrated a Quantum Random Number Generator (QRNG) device into their key generation process. Custodians rely on high-quality randomness for generating private keys (to ensure they’re unpredictable). While their existing system was secure, using a hardware QRNG adds an extra layer of assurance that even subtle patterns that might be exploitable by quantum algorithms are eliminated. We deployed the QRNG in their secure facility and adjusted their key generation scripts to mix in quantum entropy when creating new keys for clients. This was a visible step to demonstrate cutting-edge security.

Outcome

The digital asset custodian made significant headway in future-proofing its security and reassuring its stakeholders. Concretely, as a result of our engagement:

• Their internal infrastructure is now quantum-hardened in key areas. For instance, all data center interlinks and backup data are protected with hybrid or layered encryption. If an attacker were to obtain encrypted archives or tap into network cables today, the data would remain indecipherable even if that attacker gained quantum capabilities years later. The custodian’s engineering team has successfully implemented the PQC-enabled TLS for replication traffic between their primary and secondary sites – an industry first that they quietly implemented with no downtime. They reported that the new handshake (ECDHE+Kyber, for example) added only a few milliseconds to their connection setup, a negligible cost for peace of mind.

• The HSM firmware upgrade we facilitated is now in production use. This means the custodian’s highest-level keys (the ones that secure the HSM itself and master seeds) are now secured with quantum-resistant algorithms. Even if someone somehow got a hold of those (an unlikely scenario given physical security, but the worst-case they worry about), those keys are in a form that quantum computers can’t crack with known methods. This extra layer was implemented as a silent change — clients wouldn’t see anything different, but internally it’s a big leap in security.

• They have launched what they call the “Quantum-Resilient Custody Program.” This internal program, influenced by our roadmap, sets milestones for moving assets once the ecosystem is ready. As part of this, they’ve already performed successful tests on testnets: e.g., they helped trial a quantum-safe signature on a testnet version of Ethereum (using a smart contract wrapper to temporarily allow a PQC signature to authorize a transfer). These tests, while not on the main network, proved that when the time comes, they know how to react.

• Client confidence has grown. Through carefully sharing their plans and demonstrating progress (like the use of QRNG, the participation in industry standards efforts), the custodian has received positive feedback from some of its largest clients – banks and investment funds – who in turn have their own stakeholders asking about quantum risk. One banking client mentioned that they chose to entrust more assets to the custodian specifically because they could articulate a quantum-safe strategy, unlike some competitors who gave vague answers.

• The custodian’s proactive stance also caught the eye of regulators. A national financial regulator had been developing guidelines for “operational resilience in crypto,” and after learning about the custodian’s efforts, invited them to be part of a panel or advisory group on setting industry standards for post-quantum security in the fintech sector. This positions the firm not only as prepared but as a policy influencer, helping shape how others will have to secure digital assets.

By completing this first phase, the custodian hasn’t eliminated all quantum risk (which is impossible until the whole industry moves), but it has dramatically reduced its exposure and set in motion a clear plan.