Bitcoin is a peer-to-peer electronic cash system, also known as 'cryptocurrency', which basically allows people to make instant, anonymous transactions online

Bitcoin records every single transaction made on its network in a public record. This is known as the 'blockchain'

Bitcoins have to be 'mined' using specialist mining software, which then carries out a series of intensive calculations to find a certain data sequence, or 'block'. The block produces a specific data pattern when the bitcoin 'hash' algorithm is applied to the data. Whoever manages to do this will basically win bitcoins, which they can then spend in a range of places online and off.

Source: Wired.co.uk