QUANTUM COMPUTING'S POSSIBILITIES AND PERILS
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- Authors: TAHSIN SAADI SEDIK, MAJID MALAIKA, MICHAEL GORBANYOV, JOSE DEODORO
- Published: November 25, 2021
Quantum fundamentals and potential
- Quantum computing uses quantum phenomena such as superposition and entanglement to perform computations.
- The basic unit is the quantum bit (qubit); qubits represent both zero and one simultaneously (superposition).
- Entanglement: changing the state of one entangled element affects others instantly regardless of distance.
- Increasing qubit count delivers exponential rises in processing power:
- It would take about 18 quadrillion bits of traditional memory to model a quantum computer with just 54 qubits.
- A 100 qubit quantum computer would require more bits than there are atoms on our planet.
- A 280 qubit computer would require more bits than there are atoms in the known universe.
- Quantum advantage evidence:
- In 2019, Google used a quantum computer to perform a specific computation task in just 200 seconds; the company said the same task would have taken the most powerful digital supercomputer at that time 10,000 years.
Possibilities for science, industry, and finance
- Quantum computers can explore many solution paths simultaneously, drastically reducing time to solutions for complex tasks.
- Potential applications:
- Accelerate scientific discovery and innovation across subatomic particle modeling, molecular interactions, and chemical reactions.
- Revolutionize chemical engineering and material science (for example, design of new materials such as solid-state batteries).
- Improve understanding of climate change through advanced modeling.
- Transform financial market modeling and simulations by enabling more accurate Monte Carlo simulations almost in real time without unrealistic simplifications.
- Solve optimization tasks—allocating capital, portfolio optimization, ATM cash management—in a fraction of current computation time.
- Speed training of machine learning algorithms without the exponential time penalty seen with added dimensions in digital computers.
Cryptographic risks and implications for financial stability
- Quantum computing threatens modern cryptography—symmetric keys, asymmetric keys (public keys), and hash functions—used widely for digital authentication, digital signatures, and data security.
- Asymmetric keys are especially vulnerable because most are based on the factorization problem; quantum computers can factor effortlessly.
- A fully functioning quantum computer could, in theory, break an asymmetric key in a matter of minutes.
- Practical implications of successful attacks:
- Compromise of internet communications and systems used by the financial system, including mobile banking, e-commerce, payment transactions, ATM cash withdrawals, and VPN communications.
- Vulnerability of digital assets such as Bitcoin and Ethereum and password-protected web applications.
- The HTTPS protocol is noted to be used by 97 of the world's top 100 websites.
- Retroactive risk:
- Information captured and stored today could be deciphered later once sufficiently powerful quantum computers exist; almost any encrypted personal or financial message sent and stored today could be deciphered retroactively.
- Many financial institutions and regulators are not yet alert to these novel risks.
Transition efforts and timeline
- Standards development:
- The National Institute of Standards and Technology (United States) is running a competition to develop quantum-safe encryption algorithms and hopes to announce a winner by 2024.
- The European Telecommunications Standards Institute is also taking a lead; these efforts feed into other standard-setting bodies.
- Narrow window for migration due to retroactive risks.
- Practical challenges:
- Financial institutions must inventory public-key cryptography they use and that used by third-party suppliers.
- Transitioning vulnerable algorithms to post-quantum cryptography and building cryptographic agility is required.
- Historical experience shows algorithm replacements can be extremely disruptive and often take years or decades.
Recommendations and policy actions
- Immediate steps for financial institutions:
- Assess retroactive and future risks from quantum computers, including from information that may already have been captured.
- Develop plans to migrate current cryptography to quantum-resistant algorithms.
- Build cryptographic agility so algorithms can be upgraded smoothly.
- Role of the IMF:
- Raise awareness among member countries about risks to financial stability from quantum computers.
- Promote quantum-safe standards and practices.
- Encourage member countries to collaborate closely in developing quantum-safe encryption standards to ensure interoperability and adopt encryption migration plans for their financial sectors.
- Operational caution:
- Recognize that today's quantum computers are very sensitive to environmental disturbances (heat, light, vibration), which produce computation errors by pulling qubits out of their quantum state; however, machines capable of cracking codes with fewer errors are not far off.
Based on the article “Quantum Computing's Possibilities and Perils” (F&D Magazine, September 2021) by Tahsin Saadi Sedik, Majid Malaika, Michael Gorbanyov, and José Deodoro; article is based on IMF Working Paper 21/71, “Quantum Computing and the Financial System: Spooky Action at a Distance?”
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