There are two new developments in quantum computing that see Switzerland at the forefront. The first concerns a new encryption system, the QS7001, which can withstand the assault of quantum computers. The new cryptographic algorithm was presented by Swiss representatives of SEALSQ at the World Economic Forum in Davos on January 22.
It may seem paradoxical, but long before the existence of quantum chips, in 1994, mathematician Peter Shor developed an algorithm to break the RSA scheme, the Diffie-Hellman for cryptographic key exchange, and the elliptic curve scheme. In general, Shor’s algorithm can break all cryptographic schemes based on the mathematical problem known as hidden subgroups of finite abelian groups, which forms the mathematical basis of the most widespread and used cryptographic schemes for secure internet communications: namely, encrypted information transmissions (to protect the content) and message authentications (including digital signatures) to ensure the secure origin of a message and prevent tampering. What is worse is that new mathematical research could make these schemes vulnerable even to classic computers: the ones we use today, to be clear.
To avoid being overly vague, let us also explain what it means to “attack a cryptographic scheme.” When you want to secure information (i.e., make it available only to its owner) or its transmission (i.e., make it available only to the sender and receiver), a cryptographic algorithm is applied that provides this security. Removing this “seal” requires thousands of years of calculations with current computers. An algorithm capable of reducing these times to a few minutes (or better yet, seconds) constitutes an attack on the cryptographic scheme used to secure the information.
The QS7001 is based on very different mathematical assumptions, namely lattice algebra, and combines two methods approved by NIST (National Institute of Standards and Technology), namely Dilithium and Kyber, to achieve an efficient algorithm. The problem with lattices is the rather long computational time compared to today’s cryptographic schemes, which require much less computational effort (and therefore time). For this reason, all applications, such as blockchains, for which the parsimonious use of computational resources is vitally important, use efficient schemes such as elliptic curves. The QS7001 has reduced data transmission times by 15 times compared to Dilithium or Kyber while maintaining the same security. This makes data tampering while transiting the internet much less simple for a quantum computer. Obviously, in case of interception and storage (for future use) of information, the QS7001 does not make it more powerful than the other two cryptographic methods.
The second novelty concerns the launch of a Swissquote certificate that claims to replicate the performance of the Quantum Computing sector. We are much less enthusiastic about this news because, when examining the components of the certificate, we do not see much focus on the investment theme. Having positions such as Alphabet, Microsoft, Intel, and NVIDIA does not mean investing in quantum computing because research and experimentation on Quantum chips are a small part of their business: for example, Google Quantum Lab is Google’s division dedicated to quantum computing, known for launching Willow last December. However, it is an internal division, not a spin-off, and therefore not an investable vehicle. In the end, out of 26 allocated positions, only three are characterized by their focus on quantum computing: IONQ, D WAVE QUANTUM, and RIGHETTI COMPUTING, which account for about 11% of the entire portfolio.
A fundamental theme for quantum computing is cryptography and, connected to this, the secure transmission of information, which configures a different network structure: the quantum internet performs the same functions as the network we know today but with a completely different architecture and technology. There are many such companies: see, for example, the list on this site, but none of these (or similar ones) constitute an open position of the certificate. It should be clear why our enthusiasm for this made-in-Swiss product is muted: unfortunately, in our opinion, this is an investment in technology comparable to the Nasdaq; with a longer historical series, we would calculate the correlation between the certificate and the technology index, which should also statistically support this statement.
We strongly confirm our interest in this investment theme, but we reiterate that it is still too early to invest in this sector, which seems destined to become the technology of the future. To date, the only investment solution we see as viable is private equity, which, however, involves a selection of the investor audience and risks that need to be very carefully considered because, in addition to the classic liquidity risk, there is also an evident sectoral concentration risk.
Disclaimer: This article reflects the personal opinion of the Custodia Wealth Management collaborators who authored it. It does not constitute investment advice, personalized consulting, nor should it be considered as an invitation to conduct transactions on financial instruments.
