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As science-fictiony as it sounds, quantum computing is a threat that needs to be taken seriously in the world of blockchains. It may not be the kill switch that everyone imagines because of media hype, but it certainly something that should be on the radar for anyone involved in the ecosystem.

This IMF paper discusses the benefits and risks of quantum computing. On the risk side, they would crack many of the current encryption algorithms and threaten financial stability by compromising the security of mobile banking, e-commerce, fintech, digital currencies, and Internet information exchange. While the work on quantum-safe encryption is still in progress, the paper recommends that financial institutions take steps now to prepare for the cryptographic transition, by assessing future and retroactive risks from quantum computers, taking an inventory of their cryptographic algorithms (especially public keys), and building cryptographic agility to improve the overall cybersecurity resilience.

KPMG, together with a team of researchers from the Technical University of Denmark (DTU) and a yet-to-be-named European bank, has been piloting the use of quantum computing to determine which stocks to buy and sell for maximum return ("portfolio optimization"). The researchers ran the model on D-Wave's 2,000-qubit quantum annealing processor, finding that it performed better and faster than other methods, while being capable of resolving larger problems - although the study also found that D-Wave's technology comes with some programming and scalability issues.

"Not all in the crypto security world are convinced by the urgency of the matter. In some quarters, an active debate is being had about whether quantum computing will ever be strong enough to break standard encryption protocols. The question is of particularly relevance to those active in the cryptocurrency sphere, since so much of the sector depends on secure cryptography to retain its value. Opinions, however, remain hugely divided."

The biggest threat to blockchain technology from quantum computing is its ability to break the traditional encryption. However, the sword of Quantum computing is not hanging on Blockchain only but on every platform that is protected with encryption. This would potentially include almost all of the Internet and Digital world we know today.

Embryonic quantum computers are being rented by banks keen to test the revolutionary new technology. In theory, the machines are perfect for complex, multivariate analysis. In practice, today's devices lack the scale to handle real-life datasets. ABN Amro, Barclays, BBVA, NatWest, Nomura and JP Morgan are among the many banks experimenting with quantum tech. Applications explored so far include credit valuation adjustment, economic capital, regulatory stress-testing and value-at-risk. In one test, NatWest showed it would be 300 times quicker to use a quantum computer to calculate the optimal make-up of its liquidity buffers. But with off-the-shelf tech still distant, some banks are questioning their involvement. "Two years ago, I was a lot more bullish," says the chief digital officer for Nomura's wholesale businesses.

Distributed ledger technology (DLT) is one of 20 focus areas on the U.S. National Security Council (NSC) shortlist of critical and emerging technologies. The NSC's strategy calls for investing in, developing, adopting and promoting the priority technologies. Also on the shortlist: AI, data science, quantum computing and "space technologies," weapons of mass destruction mitigation technologies, and others. https://www.whitehouse.gov/wp-content/uploads/2020/10/National-Strategy-for-CET.pdf

Multiverse Computing has reportedly completed a proof-of-concept project with the Bank of Canada through which the parties used quantum computing to simulate the adoption of cryptocurrency as a method of payment by non-financial firms. Most scenarios in the model showed that non-financial institution adoption of the cryptocurrency would be slow, since there was some upfront knowledge and cost associated with converting fiat to a digital asset. It was also able to simulate how banks might respond, by reducing wire transfer fees to compete with the very low cost of crypto transactions.

The functional reality of a quantum computer cracking encrypted systems may only be five years away. The main threat is not whether quantum computers can 'open up' private key information... it's more about the power of a quantum computer to replicate a private key without you knowing, undercutting trust in the entire signature process. Imperial College researchers have suggested a soft fork of the Bitcoin blockchain that would allow the "secure transition of funds to quantum-resistant wallets." Others have proposed increasing the size of Bitcoin keys. 

The Bank of Canada published a paper that proposes a pseudonymous credential scheme for use in payment systems to protect users from fraud and abuse while retaining privacy in individual transactions. The scheme is privacy-preserving, efficient for practical applications, and hardened against quantum computing attacks. A practical and interactive credential mechanism was constructed, in which users are issued pseudonymous credentials against their personally identifiable information that can be used to register with financial service providers without revealing personal information. The protocol is shown to be secure and free of information leakage, preserving the user's privacy regardless of the number of registrations. Comparison reveals that the scheme is more efficient than equivalent, state-of-the-art post-quantum schemes.

"Current quantum computers are still toy prototypes, and the engineering advances required to build a functionally useful quantum computer are somewhere between a few years away and impossible. Even so, we already know that that such a computer could potentially factor large numbers and compute discrete logs, and break the RSA and Diffie-Hellman public-key algorithms in all of the useful key sizes."

The BIS Innovation Hub published a report on Project Leap, a joint project with the Banque de France and Deutsche Bundesbank that addresses the threat that future quantum computers represent to today's cryptographic algorithms, and thereby to the confidentiality of financial data. The report presents a comprehensive overview of the experiments conducted and the initial technical findings, including the successful set up a quantum-safe communication channel between the project participants that shields financial data.

"Project Leap, launched by the BIS Innovation Hub's Eurosystem Centre together with Bank of France and Deutsche Bundesbank, the project partners within the Eurosystem, seeks to build quantum-resistant IT environments for the financial system."

The U.S. National Institute of Standards and Technology (NIST) has announced the first four quantum-resistant encryption algorithms, after a six-year competitive evaluation process.

On July 5, 2022, the U.S. government's National Institute of Standards and Technology (NIST) selected four protocols that, with some revision, will be deployed as a cryptographic quantum shield, plus four additional candidates still under consideration. However, almost immediately, a pair of researchers broke one of those candidates in an hour on a laptop.

The BIS Innovation Hub's Swiss Centre launched Project Tourbillon to explore how to reconcile central bank digital currency (CBDC) design trade-offs between cyber resiliency, scalability and privacy. For example, higher resiliency against cyber-attacks requires additional cryptography, which can slow down payment processing. Privacy must be weighed against the need to counter money laundering, terrorism financing and other illicit payments. Project Tourbillon aims to reconcile these trade-offs by combining proven technologies such as blind signatures and mix networks with the latest research on cryptography and CBDC design suggested by David Chaum and Thomas Moser in a 2021 Swiss National Bank working paper. The conclusions of this project will be relevant for both wholesale and retail CBDC systems. The goal is to finish the prototype by mid-2023.

JPMorgan Chase has unveiled research on a Quantum Key Distribution (QKD) blockchain network that is resistant to quantum computing attacks. QKD utilizes quantum mechanics and cryptography to enable two parties to exchange secure data and detect and defend against third parties that are using quantum computers to attempt to eavesdrop on the exchange.

Researchers have calculated that it would require 13 × 106 physical qubits to break the Bitcoin network's 256-bit elliptic curve key encryption within one day. In other words, no time soon because IBM's largest superconducting quantum computer is just 127 physical qubits.

"High-value payment systems (HVPS) are typically liquidity-intensive as the payment requests are indivisible and settled on a gross basis. Finding the right order in which payments should be processed to maximize the liquidity efficiency of these systems is an NP-hard combinatorial optimization problem, which quantum algorithms may be able to tackle at meaningful scales. We developed an algorithm and ran it on a hybrid quantum annealing solver to find an ordering of payments that reduced the amount of system liquidity necessary without substantially increasing payment delays. Despite the limitations in size and speed of today's quantum computers, our algorithm provided quantifiable efficiency improvements when applied to the Canadian HVPS using a 30-day sample of transaction data. By reordering each batch of 70 payments as they entered the queue, we achieved an average of C$240 million in daily liquidity savings, with a settlement delay of approximately 90 seconds. For a few days in the sample, the liquidity savings exceeded C$1 billion. This algorithm could be incorporated as a centralized preprocessor into existing HVPS without entailing a fundamental change to their risk management models."

"All told, this is one of the most actively misleading quantum computing papers I've seen in 25 years, and I've seen … many. Having said that, this actually isn't the first time I've encountered the strange idea that the exponential quantum speedup for factoring integers, which we know about from Shor's algorithm, should somehow "rub off" onto quantum optimization heuristics that embody none of the actual insights of Shor's algorithm, as if by sympathetic magic. Since this idea needs a name, I'd hereby like to propose Cargo Cult Quantum Factoring."