Quantum Computing in Banking: Is any of It a Good Idea?
As we speak, our traditional trust-based banking system is crumbling down like a house of cards. Most experts hope that blockchain-based finance, or in other words, no-trust finance, will salvage the economy. Now, more than ever before, people are careful where they invest their money. But with the threat of malicious quantum computing use cases, are our money and investments safe?
Quantum Computing Banking
Banks around the world are looking to invest in quantum computing for their businesses. It boils down to three main perks:
1. Portfolio Optimization
Quantum computing can complete Monte Carlo simulations, which are mathematical techniques predicting possible outcomes of an uncertain event, very quickly. They can examine risk-and-return trade-offs on various investment combinations to optimize a portfolio based on a consumer’s objectives and risk tolerance.
2. Derivatives Pricing
Given that the cost of derivative instruments is based on the cost of an underlying asset, this is a challenging undertaking. The price is affected by a variety of variables, including counterparty risk, time until expiration and interest rates. Quantum computing can quickly simulate a wide range of scenarios to establish the right price.
3. Cybersecurity
Quantum computing would enable bad actors to create software that could instantly decrypt cryptography used to encrypt communications in cybersecurity programs. However, the technology could also be used to build a defense that no malicious actor could breach. More on this in a bit.
Quantum Computing IRL
There are several banks that are investing in quantum computing including:
- HSBC in partnership with IBM for their three-year-old project exploring pricing and portfolio optimization
- Goldman Sachs in partnership with QC Ware for their extensive joint research into the quantum computing application to Monte Carlo simulations
Existential Threat
Modern cryptographic techniques rely on the ability to conceal data behind math that would take a lifetime to decipher, making security breach attempts unreasonably time-consuming. As the speed of quantum computing increases, so does the threat of cybersecurity collapse. All client information, balance sheets, asset purchases, and money transfers could be defenseless in the financial world.
Despite the Biden Administration’s direction of numerous agencies to start transitioning the economy to quantum-secure cryptography and the National Institute of Standards and Technology’s provision of tools, the financial system is running out of time to protect itself from quantum computers.
Final Thoughts
All in all, the future of the banking sector seems very bleak. Inflation is rising globally, and the traditional trust-based system is breaking down. And let’s be mindful of the cryptocurrency drop, coupled with the ominous threat of quantum computing, presenting a challenging situation for the banking sector. Making this technology available to the general public would rely on good faith in humanity and its chaotic nature. Do you have faith in humanity? Can you trust that some tech-savvy John or Jane Doe will not want to play Robin Hood at the expense of everyone else, including the disadvantaged?
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