The biggest mistake you can make is not understanding how money works. The younger you are, the better your chances of becoming rich if you understand how money works.

In the next 13 points I will illustrate the basics of how money works and why Bitcoin is considered money. As an example, I will use the US dollar as the dominant currency in world trade.

1.

We use money every day, but most people can't explain what it is.

Money is involved in every transaction.

It's a way to assign value to things, easily exchange value for value, and store value for the future.

Money makes transactions and trade much easier.

2.

Historically, the world has used commodities as money.

From the use of cattle to shells and precious metals.

Over time, the market chose the form of money that was best and most efficient.

3.

Precious metals worked well as money when we lived in small communities.

Eventually gold was replaced by gold certificates, because they were easier to move than real gold.

Between 1944 and 1971, the countries of the world agreed to use the US dollar for trade. The dollar was essentially a receipt for gold.

It was expected that the US would always have enough gold to support all the US dollars in circulation.

4.

In 1971, the Federal Reserve (the central bank of the United States) experienced a bank run.

Countries suspected that the US did not have enough gold to pay back all the dollars printed.

They wanted their gold back.

5.

On 15 August 1971, the United States defaulted on its debts to other countries and broke the link between the dollar and gold.

Other countries deposited gold in the US banking system, but the US did not have enough gold to cover the number of dollars printed.

The United States printed extra money to finance the Great Society program and the Vietnam War.

6.

We currently use the US dollar as the world's reserve currency.

The US dollar is still not backed by anything.

Smart investors realised this early on. Since 1971 the price of stocks, real estate and gold have all risen because demand has increased. They realised that since US dollars can be printed at will (since they are not backed by gold), the US dollar is not a great store of value.

7.

Becoming financially literate means you understand this. Most people do not have the right financial literacy. They save all their lives in fiat money (money issued by the state) and lose all the value they have accumulated as prices rise.

When he understands that the US dollar is not scarce, he starts buying other scarce goods to protect his wealth and purchasing power.

The US dollar has lost at least 99% of its value since 1933!

The Hungarian forint is no different. 

If you're interested in how much your money has lost in value, you can use this page find out.

8.

For humanity to succeed, we need to return to a form of money that actually works.

The money cannot be managed by a central third party.

You cannot censor.

It must be unauthorised.

Most importantly, the value should not be so easy to steal (paper currencies allow the issuer to print more).

This was the case when the world used gold for transactions.

9.

For a good to become money, it must have the following properties:

Portable - easy to move from one place to another. It improves the ability to serve as a replacement tool.

Interchangeable - can be exchanged for any other monetary unit of the same value. It improves the ability to serve as a medium of exchange and a unit of account.

Available from - Easy to disassemble for small transactions and easy to combine for large transactions without loss of value. Improves the ability to serve as a medium of exchange and a unit of account.

Durable - It does not wear out, so you can use it as a store of value. Improves the ability to serve as a store of value.

Available for sale at - Others must recognise it as money and you must be able to exchange it for goods and services. It improves your ability to serve as a medium of exchange and a unit of account.

Scarce - It is certainly difficult to produce more to be used as a store of value; if the supply grows too much and too fast, the market value will fall. Improves the ability to serve as a store of value.

10.

Gold is fungible, durable, saleable and rare. Gold is not divisible or portable, and therefore requires external intermediaries to process transactions.

The US dollar improved the gold standard by being portable and divisible, but lacked it. It could be printed at will. It takes time, energy and effort to create more gold.

Historically, the world has gone through hundreds of paper currencies (such as the US dollar), and all have failed due to oversupply and greed on the part of issuers.

11.

Bitcoin is changing things. We will no longer need paper money. Bitcoin combines the best features of gold and government-issued currencies. It's portable, shareable and few.

Currently, it is not as fungible as we would like because transactions can be tracked. Bitcoin developers are working on making Bitcoin completely private.

Bitcoin is still proving to be a durable commodity - only 15 years old compared to the 200-year history of the USD and the 5,000-year history of gold.

Bitcoin will become more saleable over time as more and more market participants recognise its value. This will lead to adoption and more and more merchants will adopt it for goods and services.

12.

The market will always shift to the form of money that works best to determine the value of things, to exchange value easily and to store it for the future.

I think the world is slowly realising that Bitcoin is the perfect money. This is the ONE a device that has all the necessary features.

Because there are bugs that are being worked on, the value of Bitcoin is lower than it will be. There are legitimate concerns about privacy and potential government regulations, but Bitcoin cannot be stopped. There are no central parties to sue or companies to fine.

Bitcoin will continue to evolve as money and will be used as such for the next few decades.

As adoption increases, so will the market price.

Because Bitcoin is designed as a digital money, it will eventually become the world's reserve asset. We may still have government-issued currencies in some countries that need to be transacted, but I don't think housing will be considered an investment. All property is reduced to its use value.

13.

The future is bright for anyone who realises early in their lifecycle that Bitcoin is money!