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The Positive and the Negative Impacts of Quantum Computers on the Finance Sector

The Positive and the Negative Impacts of Quantum Computers on the Finance Sector

Blog Article Published: 01/29/2024

Originally published by DigiCert.

Written by Timothy Hollebeek.

Quantum computers will change the way many industries operate, and the impacts of quantum computing will affect all aspects of society. It’s not a question of if but when as governments and private companies race towards their development while contributing tens of billions of dollars towards their reality. Quantum computers could be used to solve complex problems faster and more accurately than traditional computers, leading to new discoveries and breakthroughs in various sectors (read our predictions about quantum’s impact by sector here). However, quantum computers could break many of the encryption algorithms currently used to secure digital trust. Thus, we’re exploring how quantum computing will impact the security of various interactions that businesses and individuals rely on in everyday life in a series of blog posts.

Quantum finance, or the field of applying quantum mechanics to finance and economics, holds great potential to benefit the industry, leveraging quantum computers that can solve more complex problems than classical computers, increasing optimization and prediction, while reducing risk.

However, quantum computing is a double-edged sword for the financial industry as it also poses a potential threat to traditional cryptographic systems which banking institutions rely on for secure transactions. In response, quantum-resistant cryptography is being developed to secure financial transactions. Financial institutions need to prepare today to implement quantum-safe solutions as soon as possible to ensure that users can maintain trust in the mass amount of transactions and data that the finance industry manages. Increasing digital trust increases brand trust


Positive: the potential of quantum finance

On one hand, quantum computers could revolutionize the financial industry, and could even be used to forecast future financial crashes. According to a Mckinsey study, finance stands to gain the most applications from quantum computing, and will likely be one of the first sectors to benefit from it. Banks and financial institutions already rely on complex calculations to understand and predict markets, but quantum computers can solve even more complex problems, in less time, than traditional computers.

Within the financial sector, quantum computers will enable calculations about the stock market that have previously been too numerous and random to analyze. Furthermore, in the realm of loan and portfolio calculations, quantum computers promise heightened precision in credit assessments, paving the way for more informed lending decisions. Additionally, quantum computers could be used to detect fraud with increased accuracy, saving banks millions of dollars as current estimates show that financial intuitions loose between $10-40 billion a year due to fraud and poor data management.

According to IBM, quantum computers could benefit the financial industry through improved:

  • trade optimization
  • risk profiling
  • targeting and predictions
  • product recommendations
  • portfolio management
  • credit scoring
  • fraud detection
  • anti-money laundering
  • forecasting financial crises

However, quantum computers will still not be able to predict financial trends with 100% accuracy. But they will have many advantages over classical computers, improving portfolio, risk management, asset pricing and more.

A few financial institutions have started experimenting with quantum computing – Goldman Sachs partnered with AWS, HSBC and IBM to investigate the use of quantum for pricing derivatives and portfolio optimization. JPMorgan has been experimenting with applying quantum solutions to optimization and risk management. Furthermore, leading banks are strategizing on how to protect against future quantum attacks.

However, currently most banks and financial institutions have not implemented quantum finance as quantum computers are not readily available yet. Quantum computers are primarily available in research labs and are not yet widespread in the financial industry. However, as quantum technology advances, quantum finance is expected to play a more significant role in revolutionizing financial modeling, analysis and decision-making processes.


Negative: the security risks are high

On the other hand, quantum computers could easily break the encryption algorithms that banks use today to protect financial data. Thus, every bank relying on traditional public key encryption algorithms could become a victim of a data breach as soon as a cryptographically relevant quantum computer is available. Banks are already a major target for attackers who are attracted by the loads of data that banks have. In fact, financial services firms are 300 times more likely to be targeted by a cyber-attack than other companies and saw a 63% increase in attacks in 2022.

Luckily, the National Institute of Standards and Technology (NIST) already has draft standards underway for new quantum-safe encryption algorithms, with final standards expected early next year.

But financial institutions should not delay protecting against quantum attacks, as they could already be subject to attacks from quantum computers in a “harvest now, decrypt later” attack. In this strategy, bad actors compromise systems today to collect encrypted data, with the intention of decrypting it later once quantum computers are available. Thus, the time for financial institutions to start transitioning to quantum-safe encryption is now. The White House has urged companies to get started on the transition and guidance is already in place from NIST and the NSA, so there’s no reason to hold off the migration.

The transition will hinge on two steps: inventorying all cryptographic assets and achieving crypto-agility through automation and centralized management to be able to update cryptography quickly.

In summary, it is imperative for financial organizations to proactively strengthen their defenses. This is not merely a matter of compliance but a critical step to safeguard trust. The time to start preparing for the post-quantum era is at hand. Organizations can take proactive steps by cataloging their cryptographic assets, prioritizing those requiring long-term trust and security, and exploring the integration of post-quantum cryptography (PQC) algorithms to fortify themselves against prospective quantum threats. For additional guidance on preparing for the transition to quantum cryptography, please refer to this blog.

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