Just when you got the hang of blockchain, along comes quantum computing to shake things up again. But it is not time to panic yet, says Chris Skinner.
I know that we deal with complex things in financial technologies. Artificial intelligence, artificial general intelligence, artificial super intelligence, machine learning and deep learning, blockchain, shared ledgers and distributed ledger technologies, cryptocurrencies, virtual currencies, digital currencies, open banking and open application programming interfaces… and so on and so forth.
Regarding this list, 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.
Land of confusion
Anyhow, this is all about to get a whole lot more complex as quantum computing climbs the agenda. Quantum computing doesn’t work in binary ones and zeroes, 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 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, taking another step towards quantum computing, researchers have guided electrons through semiconductors using incredibly short pulses of light. These extremely short, configurable pulses could lead to computers that operate 100,000 times faster than they do today.
This is important because many technology firms are developing quantum computing as part of a 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, whereas a quantum internet uses quantum signals that are far faster and cheaper to implement. According to the World Economic Forum, the Chinese launched the world’s first quantum communication satellite in 2017, 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, China 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, 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, 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 addresses the same issue that blockchain is trying to fix: a tamperproof ledger of transactions that can be trusted. For example, the chief technology officer of a US investment bank recently said qubits “would blow away blockchain technology”.
Bye bye blockchain?
Blimey! Just as we get to grips with taking blockchain proofs of concept into production trials, it’s already dead. Or is it?
After all, quantum is a decade away from being ready for prime time, while blockchain is available here and now. What is does mean is that if we go down the blockchain route, we need to be aware of what is happening with quantum. For example, will quantum currencies kill cryptocurrencies?
Physicist Stephen Wiesner pioneered the idea of quantum money in the late 1960s. Half a century later, technology and understanding of quantum mechanics has increased dramatically to the point where the practical development of quantum money is being researched.
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 would hold all the answers, and thus be the central verification unit behind the system.
This last point clearly favours centralised institutions such as central banks, and may be a good reason why quantum money takes off faster than cryptocurrencies. Having said that, there is already a company out there resisting the change by combining blockchain and quantum computing to create a quantum resistant ledger. Its mission statement: “The quantum-resistant ledger will be a first-of-its-kind, future-proof post-quantum value store and decentralised communication layer which tackles the threat quantum computing will pose to cryptocurrencies.”
It is clear that, even if quantum computing is 10 to 15 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 early access to IBM’s quantum computing developments, and allows these banks to test and see how such technologies might affect trading strategies, portfolio optimisation, asset pricing and risk analysis.
Another space to watch on our never-ending list of spaces to watch.
Chris Skinner is an independent financial commentator and chairman of the London-based Financial Services Club.
