From Quant to Quantum, via BitCoin

by Dirk Ehnts

It seems that BitCoin, a virtual currency, is coming under pressure because it is abused by drug dealers – or so they say. In case you haven’t heard of the currency, here is an educational feature:

[video:youtube:Um63OQz3bjo]

A problem might the fact that money supply approaches 21 million units and will not go above it. Deflaaaaation … but, hey, let’s not get ahead of ourselves. BitCoin probably won’t make it into the 2020s, or if so, as an art installation or a digital box in a museum.

Among other things, the idea of having money that is counterfeit-proof is nice, and many people have put up some time to think about these issues. While quants were mathematicians in Wall Street banks and good with mathematics (mostly the nice one that is linear and well-behaved), quantum money is something which is more difficult and therefore should attract a crowd of nerds to it in the coming years. Here is technology review on the SOTA:

In 1969, Stephen Wiesner at Columbia University suggested that the quantum properties of photons could be used to make “quantum money” that was impossible to counterfeit. The idea was to store a few dozen photons in light traps in each bill. and ensure that the polarisation of these photons was known only to the bank.

Since quantum states are impossible to copy, such a bank note could never be copied. And anyone wanting to check the note would need only take it to the issuing bank which could use its prior knowledge of the polarisations to test the bill’s veracity.

Wiesner’s idea became an inspiration for the generation of quantum physicists who developed quantum encryption, the ability to send a message with perfect security.

But there’s a practical problem with Wiesner’s quantum money. The most serious drawback is that only the issuing bank can verify that a bill is genuine whereas one of the important features of any practical currency is that anybody must be able to determine its veracity.

Apparently, there is another problem, as Lutomirski of the MIT team says: “Surprisingly, the question of whether public-key quantum money schemes are possible under computational assumptions has remained open for forty years, from Wiesner’s time until today.” And of course, quantum computers will crack encryption codes of today in no time … when we have them. It seems like finding a currency that cannot be counterfeited is impossible. Let me leave you then with some quantum accounting, taken from Brian Greene’s Elegant Universe (p.119):

Quantum accounting is essential to understand this. We saw in the preceding chapter that just as you might temporarily borrow money to overcome an important financial obstacle, a particle such as an electron can temporarily borrow energy to overcome a literal physical barrier. This is true. But quantum mechanics forces us to take the analogy one important step further. Imagine someone who is a compulsive borrower and goes from friend to friend asking for money. The shorter the time for which a friend can lend him money, the larger the loan he seeks. Borrow and return, borrow and return—over and over again with unflagging intensity he takes in money only to give it back in short order. Like stock prices on a wild, roller-coaster day on Wall Street, the amount of money the compulsive borrower possesses at any given moment goes through extreme fluctuations, but when all is said and done, an accounting of his finances shows that he is no better off than when he began.

C’est la vie.

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Dr. Dirk Ehnts is a research assistant at the Carl-von-Ossietzky University of Oldenburg (Germany). His focus is on economic integration and economic geography, covering trade, macro and development. He is working at the chair for international economics since 2006 and has recently co-authored a book on Innovation and International Economic Relations (in German). Ehnts has written at his own blog since 2007: Econblog 101. Curriculum Vitae.