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What is Quantum Financial System?

It’s worth mentioning that there is little information available regarding the technical characteristics of the QFS. In general, the Quantum Financial System is believed to leverage artificial intelligence (AI) and quantum computing to handle all financial transactions, eliminating the need for current financial systems, such as SWIFT. 

IBM research shows that quantum computers might drastically improve price/risk analysis, shortening analysis cycles from overnight to near real-time. Image source: IBM Institute for Business Value

In theory, the QFS could revolutionize the way we interact with money. The new Quantum Financial System is supposed to handle all transactions via an advanced AI system, eliminating the need for banks and financial institutions to play an intermediary role in handling transactions.

Another important characteristic of the QFS is the fact that it is supposed to be designed in a way that makes it resistant to encryption-breaking attempts made by quantum computers. This is important because quantum computers – due to their immense computing power and novel approach to processing – could break all existing forms of encryption and completely redefine how data is secured in the digital world.

Is the Quantum Financial System real?

The concept of the Quantum Financial System (QFS) is mostly discussed in online communities, often in the context of various conspiracy theories and financial speculation. In many cases, users are promoting a certain investment or cryptocurrency that is set to benefit when the QFS supposedly comes into effect. In reality, there is no concrete project or undertaking by financial authorities and institutions that one could point to and label as the QFS.

Even though the concept of the Quantum Financial System as such mostly consists of vague theories and speculation, it's quite clear that quantum computing will impact the financial sector. In fact, some researchers are already attempting to apply the theories and models used in quantum physics to finance, for example, in the pricing of options contracts. This field of research is dubbed "quantum finance."

Apart from the field of quantum physics potentially developing models and theories that could allow finance to be viewed through a completely different lens, quantum computers are expected to deliver massive performance enhancements, which could improve the efficiency and security of the financial system. 

What banks use the Quantum Financial System?

No bank uses the Quantum Financial System at the moment. However, it might be worth noting that large banks like JPMorgan (JPM) and Goldman Sachs (GS) are piloting the use of quantum computers for advanced financial models.

While a full-blown implementation of QFS is most likely beyond the scope of what financial institutions and governments are currently willing to try, the work on blockchain-based fiat currencies has become a worldwide effort in recent years. According to the CBDC Tracker website, a majority of countries are working on central bank digital currencies (CBDCs) in some capacity.

Most countries are working on leveraging blockchain technology and cryptography to make their currencies ready for the digital age, employing different CBDC projects. Image source: CBDC Tracker

When will the Quantum Financial System start?

There is no timeline for when the Quantum Financial System will start. In fact, it’s difficult to determine whether there are any private or public institutions working on a practical application of the QFS at all. However, it is worth noting that financial institutions are working on separate parts of QFS, with many banks and other companies developing their quantum computer systems, deploying AI models, and using blockchain to make transactions more secure.

According to quantum computing-focused research published by the IBM Institute for Business Values, the technology “remains a few years away from having a huge impact on the financial services industry.” The authors noted that research on the potential impacts of quantum computers is already underway:

“Institutions battle for tiny competitive advantages using the best technologies available. At the same time, some are already exploring next-generation “quantum computing” to dramatically reduce the time required for immensely complicated calculations and to improve accuracy significantly.”

How to invest in the Quantum Financial System?

You cannot invest in the Quantum Financial System, at least not directly. However, some people believe that ISO 20022-compliant cryptocurrencies will play a major role in the new Quantum Financial System so that you could invest in those cryptos for potential market exposure to the QFS.

Another indirect way to invest in QFS could be to buy stock in AI companies and companies that will be instrumental in laying the prerequisite infrastructure to make the Quantum Financial System possible. Big investment banks like JPMorgan Chase, Barclays, and IBM (IBM) are just some companies at the forefront of implementing quantum computing in the financial industry. Here’s what JPMC and Barclays are currently working on, according to IBM’s researchers:

“JPMC has established a quantum computing research group spanning corporate and investment banking, consumer and community banking, and asset and wealth management." 

"The [Barclays] team is testing the apps for optimization problems—such as  determining the correct sequencing and prioritization of activities—with a final outcome of settling thousands of trades every business day efficiently and accurately.”

The benefits of using quantum technologies in finance

Qubits can exist in a superposition of states, meaning they can simultaneously represent both 0 and 1 (or, more precisely, all possible states between 0 and 1). This is a key feature of quantum computing that allows for a massive increase in computational power.

While the Quantum Financial System as a whole might not see the light of day, the integration of quantum technologies in finance holds the potential to change how financial systems work. Here are some benefits that quantum computing could bring to finance:

• Enhanced computational power: Quantum computers can process complex algorithms and calculations at an exponentially faster rate compared to classical computers. This capability enables faster risk analysis, portfolio optimization, and simulations, allowing financial institutions to make more informed decisions.
   
• Advanced data analysis: Quantum machine learning algorithms can process and analyze large volumes of financial data more effectively. This can lead to improved pattern recognition, fraud detection, and market forecasting, enabling financial institutions to identify trends and opportunities more accurately.
   
• Increased security: Quantum cryptography offers enhanced security measures to protect sensitive financial information. Quantum key distribution ensures secure communication channels, making it extremely difficult for hackers to intercept or manipulate data. This can significantly reduce the risk of cyberattacks and unauthorized access.
   
• Portfolio optimization: Quantum computing can optimize investment portfolios by simultaneously considering an extensive range of variables, constraints, and scenarios. This can lead to more efficient allocation of assets, risk mitigation, and improved returns on investments.
   
• Option pricing and risk analysis: Quantum algorithms can expedite complex option pricing models, allowing for faster and more accurate valuation of financial derivatives. Additionally, quantum simulations can assist in risk analysis, helping financial institutions evaluate potential market scenarios and their impact on investments.
   
• Improved quantitative modeling: Quantum computing can enhance financial modeling techniques by providing the ability to factor in more variables and complex relationships. This can result in more accurate predictions and better decision-making processes.
   
• High-frequency trading: Quantum technologies have the potential to significantly speed up high-frequency trading strategies. By processing vast amounts of data and executing trades at faster speeds, financial institutions can capitalize on fleeting market opportunities, leading to potential gains.

The risks and disadvantages associated with using quantum technologies in finance

While quantum technologies have the potential to revolutionize finance, there are several challenges and disadvantages associated with their implementation as well. Limited availability of quantum computers, scalability issues, lack of standardized algorithms, data input/output challenges, security risks, integration complexity, ethical concerns, and regulatory compliance challenges are all obstacles that need to be addressed to utilize the potential of quantum technologies in finance fully. Ongoing research aims to overcome these challenges and enable the widespread implementation of quantum technologies in the financial sector.

Examples of quantum-resistant cryptocurrencies

Since quantum computers will be able to perform certain tasks orders of magnitude faster than even the most powerful classical computers, there is a risk that they will be able to break some of the encryption algorithms that are in use today. For example, the elliptic curve encryption and RSA encryption techniques are thought to be particularly vulnerable to attacks from quantum computers.

As you can imagine, quantum computers cracking commonly used encryption technology would cause massive cybersecurity issues worldwide, and many cryptocurrencies could be affected as well. For example, a sufficiently powerful quantum computer could potentially be capable of calculating a Bitcoin private key from its corresponding public key.

Some cryptocurrency projects are looking to take a proactive approach to this issue and are trying to ensure that their encryption algorithms are capable of withstanding attacks from quantum computers. Here are a few examples of projects that claim to be building quantum-resistant cryptocurrencies: