HSBC has partnered with Quantinuum to test the inaugural use of quantum-secure technology for distributing tokenized physical gold. The HSBC Gold Token allows retail investors in Hong Kong to obtain fractional ownership of actual gold. The transfer of these tokens through financial networks necessitates encryption that remains secure against high-performance quantum computers, without compromising performance.
The bank highlighted that this trial underscores its foreign exchange and commodities divisions’ commitment to protecting vital applications from potential quantum computing threats in the future. HSBC also noted that its collaboration with Quantinuum reveals a cost-effective way to enhance the security of current production distributed ledger technology (DLT) without requiring a complete redesign of the system.
Additionally, HSBC has demonstrated the interoperability of its gold tokens by employing post-quantum cryptography (PQC) to facilitate the secure transfer of digital assets across distributed ledgers. This functionality includes the ability to convert HSBC’s gold tokens into ERC-20 fungible tokens, which improves their distribution and compatibility with other DLTs and digital wallets. The bank asserts that this approach effectively addresses the evolving demands and regulatory requirements of its clients.
In a whitepaper detailing the trial, HSBC emphasized the importance of reinforcing security measures around DLT and asset tokenization, particularly by transitioning to quantum-safe cryptography to ensure the resilience of its financial systems against both existing and emerging cryptographic threats. The company stated, “Despite the strong security provided by distributed ledgers and blockchain through encryption and decentralized consensus mechanisms, the rapid evolution of quantum computing cyber threats requires a proactive strategy for future-proofing these systems.”
HSBC expressed the need to not only sustain but also enhance the existing security processes around distributed ledgers to maintain their resilience in the face of current and anticipated cyber threats. PQC represents the industry’s method to safeguard against the potential decryption of cryptographic keys by powerful quantum computers. However, HSBC noted that a significant concern with integrating PQC into distributed ledgers is its potential effect on performance.
The bank elaborated in its whitepaper that “new algorithms typically require larger key sizes for cryptography, which could significantly impact the operational efficacy of distributed ledgers.” It also mentioned concerns that the increased signature and key sizes associated with PQC could lead to larger block sizes and longer signature times, adversely affecting the overall performance, efficiency, and execution speed of the distributed network.
The trial aligns with Project Leap, an initiative aimed at quantum-proofing financial systems, and utilizes a PQC-VPN tunnel within a gold tokenization environment. HSBC remarked that there was minimal impact on performance when transmitting data through the tunnel, regardless of the data size.
Philip Intallura, HSBC’s global head of quantum technologies, stated, “As the first international bank to offer tokenized physical gold, HSBC is advancing that innovation with cutting-edge cybersecurity solutions for the future. This pilot effectively demonstrated the feasibility of implementing these advanced technologies in a real-world business context.”