I'm not saying if the paper is correct or not (since I can't tell), but I don't think your argument really holds. Consider applying it to multiplication:
Fundamentally, multiplication need to look at every pair of integer from the two input numbers. It must be O(n^2); N digits looking at N other digits is quadratic. Any sub-quadratic multiplication must hence necessarily lose some information.
Doesn't that have to do with how many bits you allow in the actual calculation in physical reality?
Multiplication has some properties like being cumulative. If we assume the sequence has any specific properties then we no longer have a general sequence model.