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Cryptocurrencies were designed to be a secure storage of value, one that gave the holder sole autonomy over their funds. This lead to speculation that cryptocurrencies might topple the financial system and return sovereignty over money to the people by eliminating the need for a trusted third party such as a bank in the exchange and storage of value.
The finance giant Goldman Sachs has announced that the investment bank will begin using its own funds to trade a variety of derivatives contracts tied to the price of Bitcoin with the bank’s large institutional clients. Goldman Sachs has historically maintained a more open mind to cryptocurrency than most of its competitors. Back in January, the investment bank issued a nine-page report to some of its clients entitled “Bitcoin is Money.”
Consensus algorithms are the means by which individual nodes in a distributed system come to an agreement regarding which data to validate as accurate and which to disregard. In the case of cryptocurrency, this takes the form of deciding which transactions to honor and which to decline. These algorithms make it very difficult and expensive for someone to attempt to attack the system.
As more and more money flows in and out of cryptocurrencies and cryptocurrency exchanges, these institutions are finding themselves subject to the laws and regulations imposed on the broader financial services industry. Some find that this is burdensome, and detracts from the libertarian, anti-bank ethos of cryptocurrency. The crypto-to-crypto exchange Shapeshift, for instance, refuses to serve customers in the state of New York, due to New York’s controversial BitLicense.