On 23rd October 2019, Google created quite a buzz when they announced that they were able to achieve quantum supremacy. Quantum supremacy is a benchmark that can be reached by a quantum computer only if it can solve a problem that cannot be practically solved by a classical computer. In its paper, Google claimed that they were able to solve a problem in 200 seconds, which otherwise would have taken 10,000 years by the current state of art classical supercomputer.
The extent of this claim, however, has been questioned but it does open the doors for more researchers to capitalize on this progress. Giants like Google, IBM, Microsoft, Intel have been working on quantum computers for quite some time now, and if they can build a viable quantum computer successfully in near future it can transform the Finance industry as we know it today.
Before going into the possible ways Finance can be disrupted by Quantum Computers, let us first understand what makes quantum computing so special.
How a Quantum Computer works
A classical computer holds information in bits whose value can either be 0 or 1. On the other hand, Quantum computer, inspired by quantum physics, holds information in Quantum Bits or Qubits. The Qubits can hold both states of 0 and 1 as a superposition but when they are referred they result in either 0 or 1.
This means a Quantum Computer can hold more information in Qubits than what classical computers can hold in the same number of bits. For example, 4 bits can have 16 combinations, of which it can hold only one combination at any given time. But 4 Qubits can hold all these 16 combinations simultaneously. This capacity of Qubits grows exponentially, 20 Qubits can hold over a million combinations simultaneously.
This fundamental property of Quantum computers can empower them to calculate even those complicated problems that are considered unsolvable due to the limit of today’s classical computers.
How Quantum Computers will impact Finance
According to Deltec Bank-Bahamas - “The biggest challenge of the Finance industry is to detect or forecast risks and take timely actions to mitigate them.” For example, investment banks that manage high ticket portfolios always have to be on the edge to forecast market crash or banks need to detect fraudulent transactions just in time to avoid huge losses.
Currently, there are machine learning models that help to analyze and predict finance risks. But there are thousands of factors that can contribute to making a risk model as accurate as possible. And with classical computers, it is not possible to create a risk model with a complexity of this scale. However, the power of quantum computers can exponentially scale the capabilities of current machine learning approaches and help to create complex but very accurate risk models that can create such a gigantic difference in the finance sector.
Quantum computers can drastically improve market trading which also depends on a multitude of macro factors that cannot be modeled on classical computers easily. It can assist portfolio managers to simulate a large number of trading and investment scenarios so that they can opt for those that yield maximum returns.
Apart from these two crucial benefits of risk management and trade optimizations, there can be operational benefits due to the increased computational power of quantum computers. For example, faster backend and frontend operations for client services, faster KYC process, better asset management, to name the few.
There is one aspect of quantum computing that poses a threat to the finance industry. Quantum computers, having enough Qubits, can easily be used to apply brute force and break RSA encryptions that encrypt banking passwords. Security researchers are already working on ways to avoid this threat by the time quantum computers become a reality in the near future.
Conclusion
Quantum computing is still in a very nascent stage where only prototypes are getting built. We are still quite far, but in good progress to achieve commercially viable quantum computers in the future. But the fact that quantum computing can open a whole new dimension in the finance sector is a very exciting prospect that we all are looking forward to.
Disclaimer: The author of this text, Robin Trehan, has an Undergraduate degree in economics, Masters in international business and finance and MBA in electronic business. Trehan is Senior VP at Deltec International www.deltecbank.com. The views, thoughts, and opinions expressed in this text are solely the views of the author, and not necessarily reflecting the views of Deltec International Group, its subsidiaries and/or employees.
About Deltec Bank
Headquartered in The Bahamas, Deltec is an independent financial services group that delivers bespoke solutions to meet clients’ unique needs. The Deltec group of companies includes Deltec Bank & Trust Limited, Deltec Fund Services Limited, and Deltec Investment Advisers Limited, Deltec Securities Ltd. and Long Cay Captive Management.
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