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The Changing Face of Cryptography in the Financial Industry

 4 min read / 

One does not have to look far to find cases of millions of dollars’ worth of cryptocurrencies being plucked from e-wallets. Contemporary financial journalism is littered with stories of cyber-fraud attacks on the intermediaries of the nascent cryptocurrencies, crypto-exchanges. The IMF predicts that cyber-fraud could cost the financial industry hundreds of billions of dollars in the near future. The significance of cyber-fraud to the financial industry is paramount as they act as the primary intermediaries for every Tom, Dick and Harry spending and earning money in an economy, but the technology of cryptography supersedes the industry. 

Public Encryption, Private Decryption

Perhaps cryptography is overlooked in financial journalism because there has never been a major breach of a bank. Banking systems are often cryptographically protected by the eponymous, public-key encryption system, RSA (Ravist-Shamir-Adleman), a public-key encryption system using pairs of keys, one is public encryption key and can be widely distributed while the other must remain private. The private key is based on two prime numbers which are the factors of the public key and which are used for decryption. This achieves two key functions when distributing encrypted data: it allows authentication (that the receiver is as intended) and decryption to occur simultaneously.

The RSA algorithm is based on the practical inefficiency of integer factorisation. Security lies in this mathematical problem because of the presumed difficulty of reducing incredibly large (prime) numbers (300 bits long) into their composite parts. It follows that factorising prime and semi-prime numbers is harder than factorising non-prime numbers. Due to the mathematical composition of the private RSA key, it is an impractical method to break down using contemporary technology.  

Quantum Computing Bringing Uncertainty

RSA is however criticised for its susceptibility to certain quantum computing algorithms. Quantum computing is, presumably, the next step for cryptography. It is based on the notion that where classical computers store data as either 1 or 0 (binary digits or bits), a theoretical quantum computer utilises quantum phenomena such as superposition and entanglement to store data. Superposition means that “quantum states” can be added to form another, valid quantum state and by contrast, they can be decomposed into their respective states also. The application to computing is that data can be stored as any interaction between the two states (1 and 0) and is usually interpreted by the probability distribution of the quantum bit (qubit). This poses a problem to cryptanalysts who may observe different quantum states given identical conditions. 

The message to take here is that quantum computing techniques stand to render a lot of cryptographic techniques useless. As goes the famous Clarke and Dawe sketch, the first thing to do in an event like this is to underestimate the problem so nobody panics. It is quite fitting here as there do exist cryptographic techniques that can withstand the theoretical leap of faith into a “post-quantum” age of computing. These include a multitude of absurdly complex systems going by the name of hash or lattice-based cryptography among a string of others and do not depend on integer factorisation. 

Are banks antiquated in not adopting these now to save themselves when quantum computing comes to fruition? Arguably not. Financial intermediaries are based on trust and technology such as this is nowhere near as secure as one presumes. Hackers will drift to where it is lucrative and, as it stands, that appears to be crypto-exchanges. Maybe many banks will take the “hear no evil, see no evil” approach to advanced cryptography in the forms of quantum computing until it provides a genuine cause for concern maybe banks will just stay clear of investment in such areas. The applications of quantum computing are enormous in the fields of chemistry and nanotechnology but do not underestimate the importance of data and transaction security in the financial sector.  

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