In our last newsletter we talked about quantum supremacy and the ways quantum computers can threaten classical encryption. In this edition we'll talk about when we might expect the emerging threat of quantum computers to become a pressing reality, and we'll look at the potential financial impact of a quantum cyber-attack on the financial sector.
What Do Experts Predict?
Predictions are not uniform; however, there is a mounting consensus among experts that the availability of a large-scale quantum computer is expected within the forthcoming ten years.
An expert in national security from the National Security Agency has assessed that within a time frame of three to five years, the influence of quantum technology on the workforce will begin to manifest.
Furthermore, it has been suggested by Neal Ziring, as cited by NextGov, that accessing quantum computing through cloud services will become more commonplace than local, on-site provisions. It is anticipated that the providers of quantum computing services will tackle issues related to cost and scalability, thereby facilitating the integration of quantum computing into hybrid cloud-based systems.
Securing Data Against the Quantum Threat: Closing the Window of Opportunity
The window of opportunity to devise a strategy that is secure against quantum vulnerabilities is rapidly closing. This is of acute importance for entities possessing data that must remain confidential for an extended period.
For instance, the security of data detailing financial dealings and medical information, which is required to be preserved for many years, necessitates immediate reinforcement of the systems that store such data to guard against upcoming technological progress.
Additionally, there is a notable danger that data currently transmitted over unsecured networks like the internet could be intercepted and archived for decryption at a later date with the advent of quantum computing capabilities.
Addressing the Quantum Computing Risk to Financial Stability: A Critical Analysis
The reality and magnitude of the quantum threat can be discerned particularly well when examined through the financial sector's perspective.
In November 2021, Federal Reserve Chairman Powell was alerted to the potential threat quantum computing poses to the financial infrastructure — a threat that could rival the most serious challenges faced by the nation.
Subsequent dialogues with officials from the Treasury Department have revealed a tight collaboration between banks, the Federal Reserve, and the federal government concerning cybersecurity matters.
Despite this, and even with the cautionary tone of the 2020 Office of Financial Research report that outlined quantum computing's risk to financial stability, the response to this emerging threat appears to be insufficiently robust.
Is the Quantum Threat Real?
In all conversations, even those with Federal Reserve representatives, the critical question remains the same: to what extent is the quantum threat significant? Through the lens of the financial system, we can get a pretty good understanding of this question.
Research conducted by the Hudson Institute has revealed that a potential quantum cyberattack could have more severe repercussions than traditional digital incursions, largely because such an attack would go unnoticed — with all unauthorized transactions or accesses appearing legitimate, potentially allowing the breach to persist undetected for an extended period.
A quantum cyberattack could jeopardize up to 60% of the total asset base within the banking sector, due to possible bank runs and self-generated liquidity crises.
The Hudson Institute's projections indicate that a single quantum-based disruption targeting one of the top five financial institutions in the United States — specifically the Fedwire Funds Service payment system — might set off a domino effect, leading to financial failures with losses ranging from $730 billion to as much as $1.95 trillion.
The study also highlighted that the ripple effect of a quantum incursion throughout the financial industry could lead to a reduction in the annual real GDP by 10 to 17 percent, depending on the severity of the attack. Such a downturn could push the United States economy into a recession lasting approximately six months.
The Hudson Institute's conclusion points to an even starker picture: the total indirect financial losses, gauged by GDP-at-risk, could span from $2 trillion to $3.3 trillion — a significantly higher figure than earlier estimates had suggested. The clear implication is that while the risk is now well recognized, the measures in place to mitigate it remain disappointingly inadequate.
