Bitcoin is a virtual, digital currency.
Unlike the currencies of every country in the world, Bitcoins are completely virtual. They exist only online and are not controlled by a central authority like the Federal Reserve.
If hard currency is like a record, then Bitcoin is like an MP3.
You hold Bitcoins in an online "wallet." This is an account set up on a secure third-party website, or a special computer program that you download to your computer or phone.
Unlike with banks, Bitcoin wallets are not guaranteed the same protections afforded banks by institutions like the FDIC.
If your wallet is hacked and your Bitcoins are stolen, there is not much you can do about it.
New Bitcoins enter the market by a process called "mining." Available Bitcoins are hidden amid a complex encrypted computer program. Users' computers are working round the clock to solve a complicated mathematical problem in order to release new Bitcoins.
The easiest-mined Bitcoins have already been discovered. Finding new Bitcoins requires huge amounts of computing power. That has led some hackers to take over unsuspecting users' computers to harness their power to mine for more Bitcoins.
The system is designed to require more work to get Bitcoins as time goes by, that makes the currency's growth rate, also known as inflation, steady and predictable.
For now, Bitcoins are legal, so long as they're being used for legal purchases.
A Satoshi is the smallest fraction of a Bitcoin that can currently be sent: 0.00000001 BTC, that is, a hundredth of a millionth Bitcoin.
1 BTC = 100,000,000 Satoshis