Earlier this month Japanese startup Digital Asset Markets (DAMS) announced it completed the basic development of a quantum-resistant digital securities platform. The company is backed by big names such as the Japan Exchange Group (JPX) which owns the Tokyo Stock Exchange, as well as Mitsui & Co, Monex Group and Nissan Securities. Intertrade, the trading software developer, founded it.
To date DAMS is mainly known for partnering with Mitsui to launch blockchain-based commodity tokens such as the gold-backed ZipangCoin, as well as silver and platinum coins.
When quantum computers come into existence they will break most conventional cryptography. That means a hacker will be able to decrypt stock exchange ledgers, bank data and public blockchains. One of the biggest risks is that a hacker steals data today, stores it, and decrypts it when quantum computers become available (Harvest Now, Decrypt Later (HNDL) attacks). Personal information and financial data are the most vulnerable.
It’s widely predicted that quantum computers are unlikely to be come online before 2030 and many forecast a far longer timeframe.
However, most of these predictions were before the AI breakthroughs made during the past 18 months. Not only could AI potentially speed their development by expediting some of the research tasks, but AI will most certainly accelerate the demand for quantum computing. Additionally, it will take years and possibly decades for organizations to transition to post quantum cryptography. Hence, there’s a need to start addressing the issue now.
Quantum and digital securities combined
DAMS suggests that securities firms could simultaneously address the quantum risk and move away from the relatively inefficient current securities infrastructure. It proposes that industry adopt a quantum resistant digital securities infrastructure. Of course, it has developed the solution. Its Digital Shelter provides post quantum cryptography (PQC) for vulnerable data and it applied for a patent together with Intertrade.
Decentralized digital securities infrastructures generally involve a shared ledger that records the ownership of securities. This contrasts with the current infrastructure where counterparties keep their own records and use messages to try to ensure their data is synchronized, but it often is not. It also wants to develop a quantum resistant real time gross settlement (RTGS) system.
On the one hand, its suggestion to kill two birds with one stone makes some sense. However, there are other approaches.
As part of Project Leap, the Bank for International Settlements (BIS) is exploring a transition to a quantum computing future. It suggests that central banks (and organizations) identify which security elements are ‘crypto agile’. In other words, in some cases one could just swap out the current cryptography for post quantum cryptography. In other cases that won’t be viable, but often that’s because the cryptography is embedded in hardware such as hardware security modules (HSMs). It also suggests focusing on the perimeter first, which makes sense but still leaves risks.
The quantum transition is taking time to gather momentum for several reasons. There’s a need for standards (coming soon). Companies need to use compatible cryptography for secure interoperable communications. Plus, post quantum cryptography generally requires more processing (more costly) and is slower.
Blockchains such as Ethereum aren’t just hoping for the best. They are actively researching the topic.
Quantum demands action
Circling back to DAMS’ suggestion – quantum is a good reason to migrate to digital securities. Perhaps, but there are other options. Certainly the discussion around quantum needs to be pushed harder before it becomes an emergency.
Like a pandemic, the launch of a quantum computer would not be a Black Swan event because we know it’s coming. We just don’t know exactly when. DAMS’ work is a reminder that we need to start preparing.
