Bitcoin is a digital currency which both can be used to pay with as well as to mine it. Bitcoin is decentralized, which means that there is no central organization that can determine Bitcoin, and thus can not be shut down. Bitcoin is traded on stock exchanges, and it is, therefore, supply and demand that determines the price of a Bitcoin.
The classic explanation of Bitcoin is, that it is a digital currency that can be used to pay with. But, for most of the people, it does not make any sense because how on earth can one just make a new currency and just start paying with it as if it is a real currency that we hold in our hands. Well, this is happening and not only that, it is progressing as well.
Before I can explain what Bitcoin is, you must first ask: What is money? Money is a social phenomenon! It is a thing that people have created to make it easy to trade. Money in itself has no value - it's worth nothing! Bank notes can not be eaten or used to make jewelry. This is in contrast, for example, gold, which can be used to make things (jewelry, etc.). Money today is worth something because the society assigns it a value. That is why we pay with a piece of paper in return for goods we buy and so on.
The same is the case with Bitcoin. Bitcoin is a currency which is created through internet and today it has worth which lets you pay through this currency. In fact, the market value of Bitcoin is so big that it is worth over 1 billion US dollars.
HOW BITCOIN WAS CREATED?
It was 2009, when an article was published about a new digital currency called Bitcoin. It was an article of 12 pages, published by an anonymous person who called himself Satoshi Nakamoto. This article descrived a sophisticated system where via a P2P network (a system where everyone who has this program can both collect and share content at the same time) could maintain an economic exchange.
The idea of the system is that every time you transfer money, it is stored in a 'Blockchain'. One must see it as a long chain. Imagine that you transfer 1 Bitcoin to a buddy, and he transfers it further to a store. Here the chain will contain the information that can tell you that you transfered 1 Bitcoin to your buddy and he further transfered it to the shop or store. The revolutionary about this article was to deal with this chain. All those who pay with Bitcoins, they participate in this chain and keep the network active.
People who are afraid of using Bitcoins (as I know some people who say they might lose all the money just because they don't know the procedure) must understand that we are living in a technologically advanced era where almost everything is becoming digital, just like your NetBank. You don't need to make a queue outside a bank to collect money or transfer money to someone there - you can do it at your home through internet. At least, you understand what PayPal is, right? If so, then that's like a digital currency as well but in a different way.