Michael Goldstein

Michael Goldstein, computer science major and president of Satoshi Nakamoto Institute, gives a presentation on Bitcoins and its potential to drive digital innovation at The McCombs School of Business on Tuesday evening.

Photo Credit: Fabian Fernandez | Daily Texan Staff

Computer science senior Michael Goldstein spoke Tuesday night about the digital currency Bitcoin — created by the pseudonymous company Satoshi Nakamoto five years ago. 

Whether Satoshi Nakamoto is one person or a group of people remains unclear. The anonymity of Satoshi Nakamoto allows Bitcoin to be free from outside influence, making any fluctuations of the value dependent solely upon the market.

Goldstein, who also serves as a consultant to companies interested in incorporating Bitcoin, believes the currency could be useful outside of its current application.

“I believe it is highly undervalued,” Goldstein said. “I think it offers a lot more than what we’re using it for now.”

In contrast to credit cards, when an individual makes a purchase over the internet with Bitcoins, all that is transacted are the Bitcoins. This takes out all the personal information that would otherwise be shared between the two transaction parties if a credit card were used for the purchase. 

Alan Rochard, finance sophomore and a colleague of Goldstein’s, said the lack of personal information associated with Bitcoin use makes online shopping safer. 

“With Bitcoin, you can easily send money to Amazon or whatever without them having to hold your information [and] without you having to trust them with your information,” Rochard said.

Bitcoin eliminates all third parties in regards to acquiring and storing money.

“With Bitcoin, you are your own bank,” Goldstein said.

Operating on a peer-to-peer network, transactions made using Bitcoins come at no cost to either the buyer or merchant. 

This is achieved using Public-Key Cryptography, a type of encryption software used by credit card companies and bank account security systems. The software also allows transactions to be made more securely. 

Bitcoins are also currently free of governmental jurisdiction and regulation. 

Lefteri Christodulelis, government senior, believes that the independence of the currency was paramount to Satoshi Nakamoto.

“The goal is [Satoshi Nakamoto] wanted to create a currency that’s of the people, [and] that’s not of the state intermediary.”

The worth of each individual Bitcoin is dictated by the holders and accepters of the currency.

According to Rochard, Bitcoin operates in a way that follows the trend to conduct transactions online.

“It’s currency for the digital age,” Rochard said.

Photo Credit: Jonathan Garza | Daily Texan Staff

Students spend money in thousands of ways each day on campus — using Dine In Dollars, credit cards and cash — but few have used, or even heard of, a digital currency called Bitcoin. 

Some members of The Mises Circle, a UT student roundtable organization that promotes Austrian economics, held a conference Monday to promote awareness of the phenomenon. Jeffrey Tucker, executive editor of Laissez Faire Books and a prominent advocate for Bitcoin, led the discussion remotely through live-stream video.

Bitcoins are a decentralized digital currency, not bound to any particular government. They debuted in 2009 but are not used as a mainstream currency. Currently, there are roughly 11.5 million bitcoins in circulation.

Tucker explained that when bitcoins first came out, few people accepted them as currency and they were almost useless — but he said they are becoming more popular with each passing year. Tucker said one of the reasons for their increasing popularity is that they are not subject to third-party transaction fees.

Nearly 4,500 companies now accept bitcoins as payment, and some merchants accept bitcoins in purchases of gift cards for mainstream companies, such as Amazon.

Computer science senior Michael Goldstein, co-founder of The Mises Circle, said bitcoins can offer certain protection that credit cards cannot.

“They are more secure than credit cards because when you do a bitcoin transaction, there is no identity attached,” Goldstein said. 

Goldstein also said there is no need for a physical address or bank account number, as there often is with regular online purchases.

Because bitcoins operate independent of any recognized government body, they are not regulated like traditional currency. In April, the value of a bitcoin dropped more than $100 over the course of a single day. In the two years since bitcoins were launched, they have ranged in value from $2 to $266.

Finance senior Alan Rochard said he was interested in studying and learning more about the international implications of the Bitcoin system.

“It is much easier for international corporations to use because there is less need for converting currencies,” Rochard said.

Tucker said at the video conference that he is hopeful about the future of the digital currency.

“The bitcoin is designed for the Internet age,” Tucker said. “We are doing things on the Internet that are part of the future, yet we are still using currency from hundreds of years ago.”

The UT Mises Circle, a new organization founded by students Michael Goldstein, George McHugh and Jose Nino, focuses on economics in terms of “praxeology,” the logic of human action. Rather than using models or data from past events to interpret economic activity, as is often the case with conventional economics, praxeology is centered around a simple concept: “humans act purposefully.”

“Praxeology does not investigate why people do things, what people should do or what people have done — those investigations belong to psychology, ethics and history,” McHugh, a management information systems senior, said. “Rather, praxeology asks, ‘What are the implications of people’s actions?’ Basically, the study of common sense and, thus, economics.”

The namesake of the group, Ludwig von Mises, was an Austrian-born economist and one of the founders of the Austrian School of Economics, which according to Nino, a history senior and president of Libertarian Longhorns, “is free-market oriented discipline that sought to explain recessions and other related economic crashes through the expansion of credit that is characteristic of practically all central banking systems.”

Plans to form the Mises Circle have been in circulation since spring 2011, but did not become a reality until last semester when the group officially registered as a student organization. While the founders and many members also participate in Libertarian Longhorns, which explores similar economical theory, the group does not officially endorse any political position and focuses exclusively on the economics.

“Economics may be known as ‘the dismal science,’ but you wouldn’t know it based on the enthusiasm of the students [in our organization],” Goldstein, a computer science sophomore, said. “Even more, very few of the members are economics students at the University.”

The diverse student make-up of the organization is largely due in part to the unconventional economic principals from which the Mises Circle finds its basis. According to Goldstein, the economic thought the organization uses is often overshadowed by more “mainstream” economic teachings, such as those of John Maynard Keynes.

However, the works of Mises have recently gained prominence in the headlines through Congressman Ron Paul’s frequent references to Austrian economics during Republican debates.

“In what little time is given to Paul in the debates, he will sometimes make some Austrian economic references with regards to various economic policy prescriptions,” Nino said.

One such prescription would be the recent economic recession, which has rekindled interest in these often overshadowed economic teachings. As explained in the 2009 Wall Street Journal article, “The Man Who Predicted the Depression,” Mises is said to have predicted the economic turmoil of the 1920s, even going as far to turn down a job offer with the Viennese bank Kreditanstalt, claiming that “a great crash is coming, and I don’t want my name in any way connected with it.”

“Only the Austrian economists understood and continue to understand what truly causes the booms and busts of the business cycles and how they can be fixed and avoided,” Goldstein said.

As UT does not offer a course specifically over Mises’ principles, the Mises Circle presents students with the opportunity to discuss the Austrian school of economics through means of group discussion, presentations and relevant readings.

“Our ultimate objective for our group is to have a class that covers Austrian economics at UT,” McHugh said.

While the plan is still in its early stages, the Mises Circle hopes to eventually gather enough interest for a course or seminar on Austrian economics through student involvement in their organization.

“Many people are starting to question the Keynesian economic establishment, its economic models and policy prescriptions,” Nino said. “Our goal at UT is to provide UT students [with] a legitimate forum that discusses Austrian economic principles.”

Printed on Wednesday, February 15, 2012 as: UT Mises Circle founded on humanist economic approach