What is the best way to explain that bitcoin isnt "fake" or "imaginary" to one who is ignorant about bitcoin and very close-minded? Yes I know it is sort of "imaginary", but there has to be some argument for it.
As others have said, many things of real value are imaginary. (Although "virtual" might be a better word.)
Bitcoins are valuable for the same reasons that gold is valuable: both are rare, difficult to forge, and enable trade. Depending on how ignorant the person is, you might need to explain how the block-chain acts as a public ledger, recording ownership; some people think of coins as magic numbers and don't understand that the ledger saying who owns what is crucial. It's no more imaginary than a bank account.
Then explain how anyone can update the ledger, but only by following a protocol using digital signatures, making it impossible to cheat and spend other people's coins. The really clever bit is in how two valid but conflicting updates get reconciled, but frankly that's so esoteric you may not need to mention it unless they ask.
Then go back to how there is value in trade. If you bake 10 loaves of bread, you've created some value, but they'll go stale before you can eat them all, so you
create more value if you sell some of them. So markets help create value. The internet is a marketplace
par excellence, but it needs a currency which is global, efficient, open, and free. Credit cards don't quite hack it. You might want to explain about "permissionless innovation" if you think they might be receptive to it, and how other protocols can be layered on top of bitcoin's definition of ownership much like HTTP is a layer on top of TCP/IP. Currency is merely the first application.
Ultimately the proof of the pudding is in the eating. The fact that bitcoin still hasn't crashed, despite all the recent bad PR, shows that a lot of people believe it has enduring value.
