Investing in Quantum Computing: The Next Computer Revolution

Not that long ago, if you wanted to get from point “A” to point "B,” you needed to use a physical map or follow specific written directions. Now, however, all you need to do is to program where you want to go into your GPS (global positioning system) and the kind voice will instruct you every step of the way.

Similarly, if you needed a brain scan, chances are you would be subjected to intrusive X-rays or radiation. Now, however, doctors can use non-intrusive MRIs (magnetic resonance imaging) to get a clear picture of your brain’s cells — all without exposing you to radiation of any sort.

What has catapulted these technological advances in the areas of medicine and computer programming?

Quantum computing.

Quantum computing is the next greatest technology, and investing in quantum computing is the next computer revolution.

Here’s why.

Quantum Computing: Catapulting Us into New Computer Territories

Quantum computing is a new form of computer technology that uses the laws of quantum mechanics to solve problems that are far too complex for ordinary computers to handle. Quantum mechanics is the intersection of matter and energy at the subatomic level. Using quantum physics, quantum computers can solve multidimensional and difficult problems that are time-consuming for traditional computers to solve — and they can do it in a matter of a few steps.

These “better-than-supercomputers” achieve tremendous speeds of calculation by using quantum algorithms. Quantum computers are expected to “open new frontiers of mathematics,” completely change our idea of computing, and have a “more profound” impact on technology than any other technology we have yet seen.

Intel, I.B.M., Microsoft, Amazon, and the Chinese government are all investing time and money in researching and building quantum computers. 

How it Works

The core difference between quantum computing and ordinary computing is that a quantum computer uses quantum bits (known as “qubits”). Ordinary computers use binary codes (0s and 1s) and bits to do their work. Bits for an ordinary computer can be a “0” or a “1,” but they cannot be both.

On the other hand, the qubits used by quantum computers can use a value of “0” or “1,” or they can use both values simultaneously. This makes qubits able to outperform ordinary computers in solving complex problems. 

In addition, quantum computers use the four key principles of quantum physics:

1. Superposition

2. Interference

3. Entanglement

4. Measurement.

Qubits can provide more processing power than bits because of, among other things, superposition and entanglement.

Quantum computers are not expected to replace “supercomputers,” however, they are expected to outperform ordinary computers in the optimization of problems and in “simulating the behavior of matter down to the molecular level.” 

So, how well are quantum computers working so far?

The answer is, that they aren’t. 

While quantum computers do indeed exist, and experts are excited about their prospects (making them an intriguing investment option), quantum computers still need to be out of the experimentation and research phases. 

At The Intersection of Intellectual Property and Quantum Computing 

Although quantum computers are still in the research phase, experts believe that their final implementation is just a matter of time. As one of the fastest-growing technologies, quantum computing is projected to become a trillion-dollar industry. 

For potential investors, computer developers, issuers looking to find accredited investors, or accredited investors with an investor status certificate, it is critical to prepare now, because this new technology is expected to be operational sooner than you might think. 

So we turn to the first consideration — how does one protect one’s ownership interests in quantum computing? 

The best answer, while perhaps not a perfect fit, seems to be our intellectual property (IP) laws.

Intellectual property (IP) is a broad category of legal rights that essentially protect an individual’s creations. This can be anything created by one’s intellect, such as:

• inventions

• designs

• artwork

• music

• logos

• computer programs,

• and more.

Unlike other property rights, intellectual property applies to intangible property. Intellectual property law protects creations that are the result of the application of a person’s imagination and intellect.

In the United States, the main categories of intellectual property law that protect creations and inventions are:

1. Patents

2. Copyrights

3. Trademarks, and 

4. Trade secrets.

Each one of these categories has unique requirements, rules, and restrictions, and more than one category can apply to an invention or creation.  

For example, since computers are made up of many different parts, several different IP categories can be applied to them. For example:

• The hardware can be patented.

• The design and shape can be protected by trademark, and

• The computer program and manuals can be protected by copyright.

In addition, quantum algorithms can be copyrighted, and their technical effects patented. 

While this may sound simple enough, it isn’t. 

As we have seen with other cutting-edge technologies, our laws don’t exactly fit quantum computing. 

Legal scholars note that our current intellectual property laws simply are not written to address quantum computing. Therefore, it is difficult to know exactly which intellectual property protections apply to quantum computing, and how. 

Emerging Legal Issues and Challenges in Quantum Computing 

The race is on to establish a reliable legal framework to regulate quantum computing before it gets here. 

Even though quantum computers are not working yet, both computer experts and legal experts agree that it’s just a matter of time before they will be up and running. Everyone also agrees that when quantum technology is finally functional, it will present some major risks to online security. Accordingly, there is no time for governments, businesses, and agencies to waste before preparing to protect themselves against the inevitable and formidable threats that quantum computing technology poses.    

The United States has invested considerable funds in research designed to advance quantum technology. It is the third largest government backer of quantum technology in the world. In 2018, the U.S. initiated the National Quantum Initiative Act — establishing a federal program to “accelerate quantum research.” In 2021, the government authorized funding and guidance for quantum internet projects through the implementation of the Quantum Network Infrastructure and Workforce Development Act.

In anticipation of some of the serious legal issues and risks that quantum computing is expected to generate, the U.S. has begun developing a legal framework from which quantum technology can be regulated. In 2022, President Biden signed the Quantum Computing Cybersecurity Preparedness Act, into law. The law recognizes the potential threats quantum computers might one day have on our national security and requires that the agencies’ data cryptography be examined to prepare for a time when quantum computing could decrypt that data.

Quantum computing, while innovative and exciting, poses some significant challenges and risks.

Because they can process vast amounts of data quickly and can solve intractable problems that ordinary computers can’t, once fully developed, quantum technology could decrypt current encryption algorithms that protect sensitive data. This threatens national security, individual health care information, financial and banking information, and more. If quantum computers can decrypt our current encryption algorithms, virtually all data on the internet would be compromised — rendering cybersecurity completely obsolete. 

Another potential risk described as the “catch now, exploit later” (or “harvest now, decrypt later”) anticipates hackers getting sensitive data — like medical records or credit card data — now, and holding onto it until quantum computers make it possible to decrypt the encrypted information.

Further, laws and regulations that currently serve as the standard for cybersecurity and privacy protection (i.e., “reasonable security”) are likely to change rapidly as quantum technology advances. Businesses must therefore stay abreast of all developments in this area to protect themselves and their customers by ensuring that at all times they are using the most robust protections available against quantum computing. Laws establishing new levels of encryption standards that can resist and repel quantum computing must be developed.

In addition to intellectual property issues, national security issues, and the threat of the disappearance of cybersecurity as we know it, as with any new technology, quantum computing will generate litigation in other areas related to this new technology. Increased litigation is expected to encompass legal issues such as:

• ethics

• bias

• contract disputes

• intellectual property disputes

• cybersecurity issues

• shareholder litigation

• securities issues, and

• consumer negligence class actions.

Preparing now to address these concerns is vital for governments, businesses, and investors.

Thinking of Investing in Quantum Computing?

If you are considering investing in quantum computing, you’re not alone. Investors are showing great confidence in this new technology. According to reports, almost $30 billion is being invested worldwide in quantum research and development. Others indicate that financial services is one of the four industries that stand to profit significantly from quantum computer technology — making it an attractive investment.

While most funding in this field comes from the public sector, private investments are increasing. Reports indicate that the most promising use of quantum computing in finance will be in the portfolio and risk management areas.

The burgeoning field of quantum computing has its risks and challenges, certainly, but it also has tremendous growth opportunities.

At VerifyInvestor.com we understand the regulatory challenges facing issuers and investors alike. That’s why we offer world-class accredited investor verification services. Our services are fast, efficient, cost-effective, confidential, and reliable. We help companies fully and easily comply with their legal obligations to verify investors as accredited investors.

The Debate over the SEC’s Proposed Increase of the Wealth Threshold Requirements of the Accredited Investor Definition

It’s no surprise that investors and regulators don’t always see eye to eye. One major point of contention that continues to spark debate is the Securities and Exchange Commission’s (SEC) definition of “accredited investor.” This issue heated up again recently due to the SEC’s April 2023 proposed increase in the wealth threshold requirements for the “accredited investor” definition.

Not so long ago the SEC broadened the definition of accredited investor to include, among other categories, “knowledgeable employees” and “family offices.” By expanding the definition of accredited investor in this way, the SEC widened the investment opportunities for individuals and entities looking to invest in private equity deals.

During the debates over the SEC’s 2020 changes to expand the definition of “accredited investor” to include new categories of individuals, the fact that wealth alone is not the only or even the most valid, indicator of a person’s investment sophistication, was stressed by regulators and investors alike.   

The 2020 amendments to the SEC’s definition of “accredited investor” enabled potential investors to qualify as an accredited investor based not only on income or net worth but upon defined measurements of professional knowledge, experience, or certifications — expanding the number of investors who can participate in private equity while at the same time carrying out the SEC’s mission to protect investors. 

This time, however, the SEC’s proposed changes will move the needle in the opposite direction. 

According to reports, the SEC will be changing the definition of “accredited investor” to increase the wealth threshold requirements that must be met for individuals or entities to qualify as an accredited investor. 

As we will discuss in more detail below, critics say that this will severely limit who may receive an accredited investor status certificate, narrowing the field of potential investors and making it harder for companies trying to raise capital to figure out how to find and verify accredited investors. 

The Current Definition of “Accredited Investor.”

The Securities Act of 1933 (“Securities Act” or “the Act”) requires that every public offering of a security be registered with the SEC. Registering securities with the SEC protects investors, but it is a burdensome, time-consuming, and expensive process for businesses. As a result, over the years, the SEC developed some exceptions to the rule in order to ease the regulatory burden that registration places on small businesses.

Most notably, private placements under Regulation D (“Reg. D”) are not required to comply with the SEC’s comprehensive public disclosure requirements that apply to registered offerings. For investors, this means that they can participate in private offerings — SO LONG AS — the investor is either an “accredited investor” or the number of non-accredited investors is limited to 35 (see, Reg. D 506(c).). 

The SEC’s definition of “accredited investor” contains both net worth and income requirements to protect investors from fraud. It also includes other indices of financial sophistication. For the most part, the SEC’s definition of “accredited investor” hasn’t changed significantly since 1982. 

The current wealth threshold for its definition of “accredited investor,” found in Rule 501 of Reg. D, requires that an individual be able to show that in the most recent two-year period he or she individually had an income in excess of $200,000 or a net worth (excluding a primary residence) of over $1 million. Alternatively, an investor can qualify if he or she had a joint income (in the past 2 years) with his/her spouse (or spousal equivalent) in excess of $300,000, and he/she has a reasonable expectation of reaching that same income level in the upcoming year. 

Regarding the indices of sophistication, in 2020, the SEC broadened the definition of accredited investor to include: 

• knowledgeable employees,

• registered investment advisors, exempt reporting advisers, and rural business investment companies, 

• a catch-all provision for entities that own more than $50 million, and

• family offices and family clients.

One of the major advantages of being an “accredited investor” is that it opens up investing opportunities that are not available to non-accredited investors. For example, while non-accredited investors can invest in mutual funds unless an offering meets an exemption, non-accredited investors either cannot participate at all, or only 35 non-accredited investors can participate, in a private equity offering.

By changing the definition of “accredited investor” to include more individuals with sophisticated investment experience, the SEC broadened investing to reach more investors. At the same time, however, the SEC required that issuers offering Reg. D securities verify accredited investor status for each one of their investors.  

Increasing the Accredited Investor Wealth Threshold, Decreasing the Number of Accredited Investors.

Having expanded the indices of sophistication in 2020, thus allowing more people to participate in investing, the SEC’s proposed 2023 changes to the definition of accredited investor will raise the required wealth threshold. 

This latest proposed expansion of the definition of “accredited investor” is causing quite a stir in the investment community.

Under Chairman Gary Gensler, the SEC intends to amend “the accredited investor definition by increasing the annual income and net worth thresholds.”

What dollar amount the wealth threshold will increase to has not been announced yet by the SEC. However, according to some reports, it is possible that the SEC might link the wealth metric to inflation. If that does happen, it is believed that the threshold requirement could triple — drastically diminishing the pool of accredited investors. 

Opponents of the SEC’s proposed reforms to Regulation D (“Reg. D”), including increasing the wealth threshold for “accredited investors,” argue that these reforms will increase costs, complexity, and liability exposure of companies attempting to raise capital under the Reg. D exemptions. 

Angel investors posit that the proposed changes will severely reduce the number of wealthy individuals who can participate in investment opportunities. This, they say, will have a national effect that would be devastating to start-ups that rely on angel investors to raise capital, because the increased wealth thresholds will reduce the pool of angel investors able to meet the new thresholds. 

Other arguments are that the SEC’s changes will unfairly limit access to those who do not have excessive wealth, thereby increasing a lack of diversity in investing. Many object to the SEC’s proposals as being overly paternalistic and interfering with an individual’s right to decide for himself/herself whether to invest or not. 

Opponents of the change point out that Rule 506(b) and the less frequently used 506(c), play a significant role in raising capital for small businesses. According to reports, between July 1, 2021 and June 30, 2022, Rule 506(b) offerings raised more money than all registered offerings ($2.3 trillion), while even the less used Rule 506(c) offerings raised more money than IPOs.  

And yet, despite this significant impact, the SEC’s current wealth threshold, as expressed in its current definition of “accredited investor,” already prevents over 90% of American households from participating in these offerings. 

Increasing that threshold even further, opponents argue, will serve only to increase that gap. In addition, opponents point out that being wealthy is not the same as being “financially sophisticated.” Lottery winners have money, but that does not mean that they are “financially sophisticated” or are experienced investors. Nevertheless, the SEC’s new proposed changes would allow financially unsophisticated investors to participate in riskier private offerings, while eliminating experienced but less wealthy investors from doing so. Given all this, opponents say that the SEC’s definition of “accredited investor” is flawed because it places more emphasis on how much money a person has rather than how much education or investment experience he or she has. 

In defense of the change, U.S. Securities and Exchange Commission (SEC) Commissioner Caroline Crenshaw indicated in a recent talk that Reg. D was intended as a limited exception but over time, it has gotten out of hand. 

From the SEC’s point of view, a number of reforms are necessary to protect investors. 

According to the SEC Commissioner, over the years, the use of Reg. D has caused a “bloating effect” on private issuers — allowing private companies to raise billions of dollars to fund their growth without the regulatory oversight necessary to protect investors. The concern is that the lack of information about private businesses and the minimal regulatory oversight makes private equity investments riskier for investors — putting even sophisticated investors at a disadvantage. Increasing the wealth threshold, according to the SEC, will protect the vast number of investors from being in a situation where they receive little to no disclosures. 

According to the SEC Commissioner, financial sophistication does not adequately protect investors in the same way that disclosures and regulatory oversight do.  

Changes Are Coming. 

Whichever side of the debate you land on, one thing is for sure: you can expect to see some changes in the near future to the SEC’s definition of “accredited investor.” 

While the emphasis for accredited investor criteria has always included an income test and a certain level of wealth, both sides of the debate have indicated that it’s not only about how much money a person has — there should be some more definitive way of assessing an individual’s investment experience, knowledge, and sophistication. 

In the meantime, accredited investors and issuers can rely on VerifyInvestor.com for accredited investor status verification. At VerifyInvestor.com, we offer a world-class accredited investor verification service. Our services are fast, efficient, cost-effective, confidential, and reliable. We help companies fully and easily comply with their legal obligations to verify investors as accredited investors.

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