How quantum will change everything (including banking, money and security)

I know that we deal with quite complicated things in financial technologies. AI, AGI, ASI (Artificial Intelligence, Artificial General Intelligence, Artificial Super Intelligence); machine learning and deep learning; blockchain, shared ledgers and distributed ledger technologies; cryptocurrencies, virtual currencies and digital currencies; Open Banking and Open APIs; and so on and so forth.

In fact, the list I’ve just written, can you point me to members of your banks’ board who can articulate what these things are, how they differ and how they apply to your bank?

Thought not, but then that’s my old mantra that banks’ board members don’t all need to be technologists, but at least one must be and ideally a few.

Anywho, this is all about to get a whole lot more complex as quantum computing is being discussed. Quantum computing doesn’t work in binary 1’s and 0’s, but can be in either or both states at the same time. See? I’ve confused you already.

Basically, a quantum computer doesn’t work with bits but with qubits using particles that can be in superposition (two or more quantum states added together to create another state). This is why particles can take on the value 0, or 1, or both simultaneously. The reason that this is important is that it will allow computers to process and store far more information with far less energy and far more speed than current state computers. For example, in 2016, a team of Google and Nasa scientists found a quantum computer was 100 million times faster than a conventional computer. Elsewhere, in a step towards quantum computing, researchers have guided electrons through semiconductors using incredibly short pulses of light. These extremely short, configurable pulses of light could lead to computers that operate 100,000 times faster than they do today.

This is important as many technology firms are developing quantum computing to move towards a quantum internet by 2030. A quantum internet is different to today’s internet in a fundamental way, in that today’s internet uses radiowaves to transmit information; a quantum internet uses quantum signals that are far faster and cheaper to implement. According to the World Economic Forum, China launched the world’s first quantum communication satellite last year, and they’ve since been busy testing and extending the limitations of sending entangled photons from space to ground stations on Earth and then back again. They’ve also managed to store information using quantum memory. By the end of August, the nation plans to have a working quantum communication network to boost the Beijing-Shanghai internet.

This is important in banking because it could displace blockchain, ledger and digital identity developments within a decade. This is because the quantum internet would excel at sending information securely through what is known as quantum encryption. This technology enables banks and businesses to be able to send “unhackable” data over a quantum network. This is because quantum cryptography uses a mechanic called quantum key distribution (QKD), which means an encrypted message and its keys are sent separately. Tampering with such a message causes it to be automatically destroyed, with both the sender and the receiver notified of the situation.

This is obviously something that hits the same issue that blockchain is trying to fix: a tamperproof ledger of transactions that can be trusted. For example, Waters Magazine quotes a CTO of US investment bank, “Qubits would blow away blockchain technology”. They go on to quote Anthony Scriffignano, chief data scientist at consultancy Dun & Bradstreet: “We need to seriously rethink encryption and seriously rethink things that rely on encryption, like blockchain. Anything that is heavily dependent on complexity needs to be reconsidered in a quantum world.”

In another article on Fortune, Silicon Valley Bank Vice President Natalie Fratto believes that blockchain is like a navigational tool through a maze on the ground, whilst quantum is like navigating the same maze using a helicopter. Which would you use?

Blimey! Just as we get to grips with taking blockchain proofs of concept into production trials, it’s already dead …

… or is it?

Waters also quote Michael Brett, CEO of QxBranch, who believes that “it will take a very advanced quantum computer, something on a scale we won’t see for at least a decade, to come close to rapidly unlocking blockchain-type cryptographic problems. By then, blockchain technologies will have matured to be quantum resistant or incorporate quantum algorithms into their problems.”

The Commonwealth Bank of Australia (CBA) and UBS are experimenting with quantum technology with QxBranch, which has a quantum simulator.

So will quantum kill blockchain or not? We will see.

There’s another question here though: will quantum currencies kill crypto currencies?

Stephen Wiesner gave birth to the idea of quantum money in the late 1960s. Half a century later, technology and understanding of quantum mechanics has increased dramatically such that practical developments of quantum money are being researched.

This is because quantum computing allows us to create an unclonable, unreproducible minted currency due to the unique properties of quantum states, where you cannot copy what you don’t know and if you try to read it, you will not get the correct answer. Another way of conceptually thinking about it is that the quantum states are constantly in flux, and the only time the correct answer is given to you is if you present the right question. Essentially, the quantum money mint can hold all the answers, and thus be the central verification unit behind the system.

This last point is clearly favouring centralised institutions like central banks, and may be a good reason why quantum money takes off faster than cryptocurrencies. Having said that, there’s already a company out there resisting the change by combining blockchain and quantum computing to create a Quantum Resistant Ledger (QRL). Their mission statement:

The Quantum Resistant Ledger (QRL) will be a first of its kind, future-proof post-quantum value store and decentralized communication layer which tackles the threat Quantum Computing will pose to cryptocurrencies.

It is clear that, even if quantum computing is ten to fifteen years away from becoming a mainstream technology, it is something that banks need to be watching. This is why JPMorgan Chase and Barclays became founding charter members of IBM’s Q Network. This gives them access to IBM’s quantum computing developments early, and allows these banks to test and see how such technologies might impact trading strategies, portfolio optimisation, asset pricing and risk analysis.

Another space to watch in our never-ending spaces to watch.