Trends and Technology
How Will Quantum Computing Affect Finance?
January 15, 2020 |
The C2FO Team
Through revolutionary speed and relational abilities, quantum computers are expected to reshape the financial sector. This guide explains how the technology shift could occur.
A highly disruptive form of technology, quantum computing offers the potential to reimagine a wide range of conventional financial services approaches and processes.
While quantum computing isn’t ready for prime time, major financial services companies such as Barclays, JP Morgan Chase and Goldman Sachs are already affiliating with established and start-up quantum computing companies in an effort to gain a competitive advantage. How those larger firms use the new technology will have a direct impact on the entire financial sector.
As with any emerging technology, quantum computing will provide a competitive advantage for companies that learn how to utilize it first. Pete Thomas, chief innovation officer for financial technology company C2FO, noted that history is filled with many examples of market-leading companies that lost their edge due to slow adoption of a new technology.
“C2FO and, frankly, all technology platforms have to watch out for the fact that even when incumbents see what’s coming for them, they don’t often act in time,” he said.
Much has been written about the emerging state of quantum computers. This guide walks you through what makes quantum computing unique from conventional technology and the ways it could potentially revolutionize businesses in financial services.
What is quantum computing?
Quantum computing leverages the power of subatomic particles to conduct processes rapidly and relationally. As conventional computer chips run up against limitations, quantum computing is poised to transform the amount of data that can be processed and analyzed for a wide variety of applications.
“A classical computation is like a solo voice—one line of pure tones succeeding each other. A quantum computation is like a symphony—many lines of tones interfering with one another,” according to Seth Lloyd, professor of mechanical and physics at the Massachusetts Institute of Technology (MIT) and a self-described “quantum mechanic.”
The financial services applications of quantum computing are staggering. Quantum computing will transform security, modeling and artificial intelligence, creating opportunities and challenges for financial services organizations during the next five to 10 years and beyond.
The current speed of computing
During the 60-plus years of conventional computing, evolutions in microchip technology have powered massive advancements in the ability of computers to process information rapidly.
Gordon Moore, co-founder of Intel, articulated Moore’s Law, which holds that the number of transistors per square inch on a microchip doubles as the costs drop by half on a year-to-year basis. In other words, the smaller microchips get, the faster conventional computers get.
While this law has powered the increases of processing speed and the growth in computer-type devices, recently Moore’s Law has slowed and perhaps even ceased to function. Many technology experts, include Gordon Moore himself, have predicted Moore’s Law will end by 2025. This development is likely to constrain further advancements in conventional computer processing speed, inhibiting the ability to analyze large data sets and solve complex, challenging problems.
That’s where quantum computing comes in.
Rapid advancements in processing power
Quantum computing circumvents the limitations of conventional computing by employing quantum mechanics. Quantum mechanics operates at the level of subatomic particles that possess characteristics of both waves and particles.
In contrast, conventional computing operates at the level of classical mechanics, in which objects exist in a single, well-defined state. That means that the transistors, or bits, that power conventional computer chips carry a value of either 0 or one.
However, in quantum mechanics, objects can simultaneously exist in two states at once. Qubits, which power quantum computers, offer the ability to hold significantly more information in them than traditional bits. They can simultaneously exist with a value of 0 or 1.
Because Qubits are also inter-dependent, computer operations can be leveraged across them, creating a much faster, interconnected processing system than a conventional computer can provide.
Over a 20-year period between 1998 and 2017, the boost in quantum computer processing speed was 25x. That’s relatively slow compared with the technology’s pace of advancement today, according to research firm CB Insights.
Rapid advancements in quantum computer processing power led to quantifying the increasing capacity of quantum computers as Rose’s Law. The term was coined by Steve Jurvetson, an investor in Canadian quantum computing company D-Wave Systems. Rose’s Law is to quantum computing what Moore’s Law is to conventional computing.
Three quantum computing implications for finance
Quantum computing will reshape financial services—but exactly how and when is impossible to predict.
With that in mind, here are three thoughts on how quantum computing could revolutionize finance:
Reshaping security: Within the next five to 10 years, quantum computers will possess enough power to break what are considered today’s “strong” computer encryption keys. As the World Economic Forum puts it, “Without quantum-safe cryptography and security, all information that is transmitted on public channels now—or in the future—is vulnerable to eavesdropping. Even encrypted data that is safe today can be stored for later decryption once a working quantum computer of sufficient capacity becomes available.”
That means the first countries to make serious breakthroughs in quantum computing will have a decided advantage—both economically and militarily—in today’s connected world.
That’s the “bad” news. The good news is that quantum computing security is literally the safest form of cryptography known, due to its ability to respond to threats in ways that reveal intrusions before a breach occurs, while sending information without a separate method of transmission.
This means it’s important to stay abreast of developments in quantum computing, because when quantum computers gain the ability to decrypt conventional computing encryption keys, your organization will need a new cybersecurity plan.
Improving modeling and risk management: Because of quantum computing’s blazingly fast processing speeds, computers will be able to run calculations at speeds much faster than established algorithms. IBM, for example, published a paper that demonstrated a quadratic speed-up of conventional Monte Carlo simulations used in predicting investment portfolio risk.
Such techniques could be applied across a wide spectrum of risk management practices. IBM has modeled asset pricing on quantum computers, an application that is relevant to virtually every type of financial services business. With the power of quantum computing growing exponentially, it won’t long before such applications can be applied to a wide variety of real-world use cases.
Facilitating AI: The interrelated nature of qubits and the speed of quantum computing lend themselves to learning from feedback at a rapid speed, which is the hallmark of artificial intelligence. This ability will allow quantum computing systems to identify patterns invisible to conventional computers, according to The Wall Street Journal.
Financial services companies could leverage this power to respond more effectively to customers via chat apps and determine the most efficient methods for trading and pricing securities and managing risk. Digital assistants such as Alexa and Siri are also likely to gain the power to fully understand their interactions with customers, boosting their resourcefulness.
The bottom line
The promise of quantum computing is just now beginning to manifest. In the future, quantum computing applications are likely to help financial services companies personalize products more fully, detect fraud more rapidly and optimize trading.
While the full impact of quantum computing has yet to be realized, companies in the financial sector shouldn’t sleep on the new technology.
C2FO’s Thomas noted the story of how Kodak executives were warned in the early 1980s that digital technology would someday make film photography obsolete. They failed to act on that information and Kodak never recovered.
“That’s a scary example that fintech overall can likely learn from when it comes to things like quantum computing and, frankly, bitcoin as well,” Thomas said.
As this story continues to develop, check back for updates on how quantum computing will impact you and your organization.