Quantum computing in banking and finance simplified
Technology
Quantum computing has come up time and again in discussions around security and privacy as the perfect solution to scale to global needs. However, it was always kept at an arm’s length and the applications of the technology were largely limited to the research circles.
However, looks like the times are changing, and with that, the adaptability of this futuristic technology. Banking and finance seem to be the first sector to embrace this shift.
What is Quantum computing?
Quantum computing is the study of new computing methods and hardware based on quantum physics. This theory attempts to explain the behaviour of energy and matter on the quantum (atomic and subatomic) level.
This uses quantum entities called ‘qubits’, which differ from the ‘bits’ (0s and 1s) that classical computing uses. These qubits exist in a state of superposition ( 0 and 1 at the same time), which allows them to process a vast amount of information at a much higher rate. This opens up a new realm of possibilities, where processors could work millions of times faster than the current ones.
But here’s the catch: on the atomic scale, the rules change and the ‘classical’ laws of physics we take for granted in our everyday life, no longer apply. This deviation opens up a possibility of a new kind of future with its share of problems and solutions, especially in the world of computers.
Quantum computing and the banking sector
All financial institutions deal with sensitive customer data and transaction information. Moreover, regulators require this data to be stored for several periods of time. Hence, a huge need comes up for the security and privacy of this data.
While there are many encryption algorithms used today by these institutions, they rely on complex mathematical problems which the classical computers of today cannot solve. This no longer seems to be the case because these problems can now be easily cracked with the help of their quantum counterparts.
How hard is it anyway, to solve these problems?
The encryption of almost all private information sent over the internet relies on one mathematical phenomenon - that it’s very hard to take a huge number and find its factors using a normal, non-quantum computer.
If all classical computers could work together to break an encryption key, this would take approximately 14 billion years. Also, encrypting the data isn’t a guarantee of protection - it’s a way of making it harder to access while hoping that no one thinks it’s worth trying to decrypt it.
AGAINST
Threat to privacy and security
The Algorithm that can be used to breach any amount of data and invade encryption is called “Shor’s Algorithm.” While there’s nothing intrinsically quantum mechanical about this algorithm, running this happens to be ridiculously fast on quantum computers.
Some scientists expect this breach to happen in the next decade. Termed as “harvest now, decrypt later,” it is believed that nefarious actors are now hoarding encrypted data, which will become accessible as soon as more powerful quantum devices become available.
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Both the problem and solution
Not all is lost since data owners can still fight this imminent threat, and protect their information in the future.
There is an initiative, known as Post-Quantum Cryptography, to create new encryption standards by starting to use quantum-resistant algorithms, so the world can be ready for quantum technology.
Presents huge opportunity
Other applications of quantum computing can be:
Accurate simulation of markets and prediction of how commodity prices influence the cost of other assets.
Monte Carlo simulations to forecast future markets
Prediction of price of options, or risk assessment in financial models.
Currently, Dharma Capital and Toshiba have joined forces in exploring the potential of quantum computers in assessing the effectiveness of high-frequency trading strategies for listed stocks in Japanese markets.
Author’s opinion
At the end of the day, quantum technology is a double-edged sword. On one hand, it looks like a tool that probably might make us closer to a financial doomsday, and on the other, it presents a solution to the same problem. However, security is just one implication of this technology.
Outside of finance, they can also improve database performance and can give us more accurate simulations of quantum mechanics. And like any discovery done by and for humankind, this also comes with its own set of opportunities and costs that we just need to keep up with.
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