Author: Castle Labs
Compiled by: TechFlow Deep Tides
Deep Tides Guide: As on-chain finance increasingly converges with traditional markets, two critical issues emerge: all capital flows are publicly visible, and quantum computing poses a threat to existing cryptographic signatures. Bitcoin, as the largest asset holding over 56% of the crypto market's share, serves as the clearest test case for both problems. Starknet's strkBTC solution attempts to address visibility and longevity simultaneously: enabling private Bitcoin transfers while preparing the technology for the quantum era.
As on-chain finance moves closer to traditional markets, digital assets are facing higher standards and more stringent requirements.
This new world presents two key issues: on-chain capital flows are publicly visible to everyone, and the cryptographic signatures underpinning the entire technology face a threat from quantum computing.
This is most evident with Bitcoin.
Bitcoin currently accounts for over 56% of the total crypto market capitalization, remaining the anchor of the entire crypto market, despite having almost no programmability itself.
To enhance its utility and programmability, Bitcoin is cross-chained out, entering the world of on-chain finance through wrapped tokens.
But Bitcoin in DeFi needs more than just higher yields; it needs a way to transfer large amounts without broadcasting it publicly, and a guarantee that it remains secure when tomorrow's quantum computers arrive.
The same is true for other assets in on-chain finance: assets need to be transferred, settled, and combined without exposing every position to the public, and they cannot rely on cryptographic technologies that may not survive the next decade.
We have been tracking a protocol that seems to have understood these issues earlier than most and built its solutions around these two problems.
While Starknet launched its BTCFi campaign earlier this year, it's not just about making Bitcoin usable on-chain. It's treating Bitcoin as the first clear test case for the conditions that individuals and institutions genuinely care about: private by default, disclosable when necessary, and hardened for a post-quantum future.
For context on Starknet's work in this area, we previously covered why $2 trillion worth of Bitcoin sits idle and how Starknet's roadmap charts a path to trustless BTC, as well as Starknet's new privacy framework STRK20, and why they designed the system for "privacy through ownership."
Privacy and the Quantum Countdown
A core tenet of the crypto world has always been "don't trust, verify," which is precisely what transparent blockchains have allowed us to do. Verify balances, peek at transfers, examine cash flows, monitor contract interactions. Everything is public for everyone.
You can understand how this started.
Transparency builds trust, but complete transparency harms intellectual property, strategy, personal safety, and operational privacy. This is especially true today, where AI-driven deanonymization can link public addresses to real identities with up to 90% accuracy.
Privacy is not only a human right but also critical infrastructure needed for user protection and institutional adoption on-chain.
Individuals need privacy to avoid surveillance, profiling, harassment, crime, and political exposure. Institutions need privacy to ensure the confidentiality of holdings, order flows, and other data, as well as to prevent counterparty visibility and strategy leaks. Furthermore, privacy needs to be configurable for selective disclosure to auditors, regulators, or compliance departments.
Previous attempts at on-chain privacy have repeatedly highlighted trade-offs:
Pure anonymity privacy pools like Tornado Cash faced compliance pressures, leading to OFAC sanctions, criminal charges, and prison sentences for developers, stark proof that non-compliant paths are fraught with political and legal risk.
Native privacy coins (e.g., Monero, Zcash) demonstrated that hiding transactions is possible but have struggled to integrate with the rest of the on-chain world, unable to compose with DeFi primitives at scale, pointing to a problem bigger than privacy itself: liquidity, interoperability, and compliance issues.
Private execution systems like Aztec saw early demand for private DeFi, but they often faced high costs, fragmented liquidity, and poor user experiences.
The lack of privacy leads to issues not just in the isolated on-chain world but also permeates the physical world. On-chain addresses tied to real people and publicly visible balances create higher risks of attack. CertiK reported 34 verified physical attacks against cryptocurrency holders in the first four months of 2026, a 41% increase year-over-year, representing only the documented portion of these severely underreported incidents. More specifically, in France, there were 41 crypto-related kidnappings from January to May 2026, averaging one every 2.5 days.
Privacy is not just about hiding transaction activity or protecting alpha; it's increasingly about lowering personal and operational risk.
While privacy issues are being actively addressed in the industry, another threat from quantum computing has emerged. A path that simultaneously solves visibility and longevity could propel blockchains closer to becoming next-generation financial infrastructure.
This March, a Google Quantum AI report co-authored by Justin Drake (Ethereum Foundation) and Dan Boneh (Stanford University) identified multiple attack vectors and estimated that roughly $100 billion in the Ethereum ecosystem is at risk. It also singled out Starknet as having a stronger post-quantum standing than other major L2s because its proof system is based on hash-based STARK assumptions rather than elliptic curve cryptography.
The paper focused on secp256k1 public key exposure, relevant to Bitcoin and Ethereum wallets, stating that a sufficiently powerful quantum computer could attack wallets in less than 9 minutes. Justin Drake later warned that there is "at least a 10% chance" quantum computers could recover private keys from exposed public keys by 2032.
While not a reality today, the long-term security and longevity of assets meant to be held for decades are being called into question.
Bitcoin is the world's most important digital asset, and as it increasingly serves as collateral, reserves, and assets on institutional balance sheets, its security and privacy requirements rise.
In the next section, we highlight a solution being developed around Bitcoin, the largest and clearest test case for these privacy challenges.
strkBTC: Private Bitcoin on Starknet
We've likely all used wrapped BTC tokens. They bring Bitcoin into other ecosystems and make it composable: as a tradable asset, as collateral, as liquidity.
What they don't solve is visibility.
While wrapped BTC can become productive, every move remains monitorable, inspectable, and counterparty-tradeable. Deposits, loans, trades, LP positions, repayments, withdrawals, wallet clustering, treasury flows. All public by default.
This is not how serious financial markets operate, and until this is addressed, on-chain finance will keep hitting an institutional ceiling.
In traditional finance, privacy is built into the infrastructure, whether you're a retail user or an institutional giant. In fact, a large portion of equity trading volume flows through private or over-the-counter venues like dark pools, where counterparties see what they need, regulators retain access when required, and the public sees aggregated volume, not every real-time move.
Cryptocurrency treats visibility as the standard. In reality, privacy should be the norm.
strkBTC is Starknet's attempt to let Bitcoin flow in the on-chain finance world without this limitation.
strkBTC is an ERC-20 on Starknet, backed by BTC locked on the Bitcoin network, and built on StarkWare's privacy framework STRK20 for shielded balances and private transfers.
STRK20 provides strkBTC with two modes:
In public mode, it behaves like a standard ERC-20: users can hold, transfer, supply to lending markets, provide liquidity, or use it as collateral.
In shielded mode, selected balances and transfers are hidden from public view. Users can shield, trade privately, and unshield back to public balances directly from within their wallet.
Before the Starknet v0.14.2 upgrade, which enabled STRK20, applications wanting to verify STARK proofs on Starknet had to do so within a smart contract, making it expensive and complex due to proof size. Now, transactions can directly reference off-chain proofs, with Starknet consensus handling verification natively via in-protocol proof verification.
This unlocks privacy at the protocol level, versus the historical friction of separate apps, chains, pools, or mixers, which added complexity, cost, and liquidity fragmentation. This allows applications to focus on building better products, as the underlying infrastructure has made private operations easily accessible to builders.
Compliance is a key part of the design, opening Starknet to institutions coming on-chain.
When users shield strkBTC, associated viewing keys are shared with Financial Privacy Inc. (also known as FPI), an independent third-party auditor operating the compliance infrastructure for STRK20, granting them scoped access in the event of a valid regulatory request. While this may not align with pure cypherpunk philosophy, it aligns much more closely with traditional markets. Private to the public, disclosed to regulators.
The bridge follows similar logic, operated by a trusted strkBTC consortium composed of Twinstake, NEAR Intents, Luganodes, UTXO Management, and Xverse. Currently, these independent signers support minting and burning between BTC and strkBTC. The consortium is not the final state; however, Starknet is committed to a hardening roadmap over time.
strkBTC is not meant to be just another wrapped token; it's meant to unlock the potential of a programmable, composable BTC whose moves aren't broadcast, solving the first issue: visibility.
The next issue is longevity.
The Quantum Problem for Blockchains
Every blockchain relies on public-key cryptography. When a user signs a transaction, they reveal their public key while keeping their private key hidden. This is routine on Bitcoin and most other blockchains, considered perfectly normal and secure in today's environment. But in a post-quantum world, this assumption becomes somewhat unstable.
As mentioned earlier, a sufficiently powerful quantum computer running Shor's algorithm could theoretically derive the private key from an exposed public key. This means public key exposure, the harmless part of transaction validation, could soon become a potential attack surface. This isn't unique to any single chain, as the same elliptic curve underpinnings lie beneath Bitcoin, Ethereum, and Solana.
The threat is shared, but the response capabilities are not. The most exposed chains are often the slowest to move, with Bitcoin being the clearest example.
Bitcoin isn't short on ideas for a post-quantum future. If anything, it has too many. The problem is agreeing on the trade-offs the network is willing to accept: larger signatures, higher costs, legacy coin handling, user migration, wallet support, miner policies, or battles over freezing dormant and unmigrated coins.
Clearly, Bitcoin's problem is as much social and political as it is technical.
Dan Boneh, a co-author of the Google paper, calmed everyone down in a recent interview: "Bitcoin should not panic, but it also can't ignore this. Moving too fast could be worse than waiting, because a rushed post-quantum migration could introduce catastrophic bugs before quantum is a live attack."
Bitcoin will likely solve its quantum problem, but not quickly or cleanly.
This slowness is, in some ways, a feature of sound money, but it also leaves a door open. While the base layer debates, more agile stacks can build the longevity that Bitcoin itself cannot yet commit to.
Ethereum and its extended L2s won't escape this problem. Most rollups settle to Ethereum and rely on it for data availability, thus inheriting the base layer's exposure. Ethereum is aware of this and has released its own multi-year migration plan, but until that plan arrives, every chain built on it is exposed to Ethereum's post-quantum migration problem.
This is where Starknet is ahead. While it settles to Ethereum like any other L2, Starknet's core, its proof layer, is built on foundations that don't rely on quantum-vulnerable cryptography. While the exposure inherited from Ethereum is real, everything within Starknet's own stack carries less migration debt than most major chains, and it has more in the pipeline.
Architectural Advantages
Starknet's advantageous position stems from two design choices, both made before quantum computing was a pressing concern.
The first is the proof layer, the system generating STARK proofs to secure every state transition on the network. It relies on hash functions, not the elliptic curve mathematics threatened by quantum computers, a design established since a 2018 paper co-authored by StarkWare CEO Eli Ben-Sasson. This is the critical security layer and why Google's paper listed Starknet as the only major L2 already ahead.
The second is native account abstraction. On most chains, signature schemes are fixed at the protocol level, so replacing them requires a hard fork, with every user and app having to follow. Starknet lets accounts define how to verify identity themselves, so users can migrate to quantum-resistant signatures without changing the protocol layer. According to StarkWare, a quantum-resistant wallet, S2morrow, is already deployed using Falcon-512, and OpenZeppelin is building a standardized version.
On many chains, such a change would mean coordinating a whole-protocol migration. On Starknet, much of the work can start with wallet upgrades. This doesn't mean every Starknet wallet is quantum-resistant, but this model provides an easier path for Starknet users.
StarkWare is now working to close the remaining gaps. Last week they released a roadmap to make Starknet end-to-end quantum-resistant before Q-day. Q-day refers to the point in time when quantum computers become powerful enough to break today's cryptography.
The roadmap is divided into three phases:
None of this means Starknet is fully quantum-resistant today, nor does the roadmap claim so.
What Still Needs Proving?
Starknet can replace Pedersen with BLAKE2, improve quantum-resistant wallet support, and provide migration paths for legacy contracts, but it cannot eliminate all problems inherited from the base layer. Bridged messages and blob data availability still depend on Ethereum's own quantum-resistant roadmap. Starknet can harden the parts it controls, but what's inherited from Ethereum will progress on Ethereum's timeline. That said, the Ethereum Foundation has outlined structured fork milestones, aiming to complete core quantum-resistant infrastructure around 2029.
strkBTC has a similar staged story. Currently, the bridge relies on a consortium to coordinate minting and burning between BTC and strkBTC. This is a trusted starting point, not the ideal trustless final state. Starknet aims to move from the consortium model to Bitcoin-native verification, then to a less-trust BitVM design, and finally, if Bitcoin enables the required opcodes in the future, to a fully trustless OP_CAT-based design.
Viewing keys are another part yet to be proven. They are Starknet's pragmatic answer to institutional privacy: publicly opaque but selectively disclosable, but they haven't been stress-tested in real scenarios, raising questions about who can request disclosure, under what conditions, and with what safeguards.
Digital assets, including Bitcoin, don't need another wrapper. They need surrounding infrastructure that can operate on-chain without compromising the two things institutions care about most: confidentiality today and longevity tomorrow.
strkBTC solves confidentiality by providing a private, selectively disclosable path for BTC into DeFi. Starknet's existing architecture and roadmap target longevity: its proof layer already avoids the elliptic curve assumptions that burden other protocols with quantum-resistant migration, and its roadmap now extends this advantage to the remaining pieces, explicitly aiming to make Starknet quantum-resistant before "Q-day."
While outcomes are still early, the direction is clear: the next institutional phase of on-chain finance needs more than just yield. It needs privacy, compliance, programmability, and longevity all integrated within the same tech stack.
