Paper banknotes and metal coins are boring and inconvenient, and now we have the Internet. Digital money, therefore, seems like a useful idea. The solution that the developed world has mainly come up with is simply to use our banks. You have an account and you can transfer money to other people's accounts, by debit card, credit card, PayPal, or whatever. Central authority means it is judiciously regulated, errors and thefts can be reversed, etc. It's also a smooth transition from paper money, the same thing, but you can do new things with it. But this is not a complete solution; one stop's card reader might be down, your payment gateway might charge a fee, you might want to send money to someone who is not in the same banking network, you care about your privacy, registering with your bank every time gets boring, so some form of digital cash would be nice too.
Bitcoin is a cryptocurrency: something on the internet that allows you to trade unique digital items. The objects would take about an eternity to simulate; thus, if we place a value on objects, we can exchange something in them like we make money. It's decentralized, so you can send money without having to go through a central clearinghouse. Bitcoin's transaction ledger, the blockchain, is presented as immutable: no one can change it without it being obvious that it has been tampered with. The idea is that there is no central control, anyone can run a Bitcoin node and be part of the network, no one can block or cancel your transactions and you don't have to take their word for it. anyone for the state of the system. You know what you feel like "the money". You can earn it, you can spend it on all kinds of things, you can keep it for the future, you can invest it. It can be in a bank account with a card or bills and coins in your pocket - it still looks like a pound or a dollar to you.
In practice, bitcoin is much like money in a bank account with a debit card, except without some sort of safety net - everything is unregulated and uninsured, there is no way to cancel. a transaction and there is no customer service.
If you "have" bitcoin, you don't actually have it on your computer. What you have is a Bitcoin address (like a bank account number) and the key to that address
(another number, which functions as the PIN code of the first number). The Bitcoin address is mentioned in transactions on the blockchain; the key is the one thing you have that makes your bitcoins yours.
To send bitcoin from your address to another address (much like sending money through PayPal), you generate a transaction that is sent over the network and added to the
next block of transactions. Once in a block, this transaction is publicly visible on the blockchain forever.
A wallet is where you keep your keys. Usually, it's a program that generates and manages addresses and presents you with balances. You can generate a new address and its corresponding key at any time.
You can keep the keys to your bitcoins in a warm wallet (like a checking account), running on a computer connected to the internet, or in a cold wallet (like keeping money in a sock
under your bed), which can be on a computer not connected to the internet, or just the keys themselves stored on a USB stick or even printed out on paper.