Late last year HSBC tokenized gold that’s stored in its London vault for trading on HSBC Evolve, the bank’s institutional digital platform for FX and precious metal trading. Earlier this year it followed up by making the tokenized gold available to retail Hong Kong clients, supporting fractional ownership. Now HSBC shared its work to ensure tokenized gold is secure in a quantum computing world through a collaboration with Quantinuum, using post-quantum cryptography (PQC).
While many believe quantum computing to be a decade or more away, it’s a huge risk that it could arrive sooner, rendering bank cryptography vulnerable. The BIS Innovation Hub launched Project Leap to investigate the topic.
In its trials, HSBC explored how to move the digital assets across different networks securely, including the ability to convert HSBC’s gold tokens to ERC-20 fungible tokens, the standard supported by Ethereum. HSBC’s Orion tokenization platform uses the permissioned Canton blockchain technology.
“HSBC was the first international bank to offer tokenised physical gold and is now building on that innovation with cutting-edge cybersecurity protection for the future,” said Philip Intallura, Global Head of Quantum Technologies, HSBC. “This pilot successfully demonstrated the viability of deploying these advanced technologies for a real-world business environment.”
Quantum and DLT
The reason why distributed ledgers and other platforms haven’t already adopted PQC is that advanced cryptography involves a major performance hit. As part of Project Leap, one of the interim solutions is to use a PQC virtual private network (VPN) connection. In tech terms, the connection is via a tunnel. Apart from the initial tunnel setup once or twice a day, a PQC-VPN doesn’t dramatically impact performance.
The HSBC trial simulated an asset manager acquiring gold on the HSBC Evolve platform, tokenizing it via the HSBC Orion DLT and then transferring the digital assets from Orion to the asset manager’s public permissioned ledger using the PQC VPN. In fact, all the communications between nodes on the asset manager’s network also used the PQC VPN. Once the tokens are on the second DLT, the asset manager can distribute the tokens to its client’s wallets.
HSBC released a paper outlining the quantum gold tokenization trials.
Meanwhile, Japan’s Digital Asset Markets, a startup backed by the owner of the Tokyo Stock Exchange, completed the basic development of a quantum-resistant digital securities platform in May.
