Exactly like I say it: "Like file sharing, but there is only one file everybody is sharing. people with bitcoins has the keys to a little part of that file where he stores his bitcoins. So everybody agrees that you own your coins, but only you can withdraw them."
That's a horrible explanation. I know how bitcoin works and I can't even figure out what you are talking about.
How about this:
What is Bitcoin?
Bitcoin is a payment system that has it's own currency. It's like Paypal, but bitcoins are used instead of dollars and there is no company.
Why would I want to use it?
Bitcoin is fast, cheap, and mostly anonymous. Nobody can freeze or confiscate your bitcoins or prevent you from spending them. You can send bitcoins directly to anyone anywhere and at any time without having to go through anybody. Once you receive bitcoins, they cannot be taken back. There are no bounced checks or counterfeit bitcoins.
Why doesn't Bitcoin use dollars?
Using dollars is slow and expensive and the money is tracked. Dollars can be frozen and confiscated and you need permission to send them. When you receive dollars, there is no guarantee that you can keep them.
How do I spend bitcoins?
1. Get a wallet.
2. Get some bitcoins.
3. Go to a site that accepts bitcoins.
4. Send the bitcoins to the address that is provided.
How does it work?
There is a public ledger called the "block chain" that records every Bitcoin transaction. There are thousands of copies of this ledger held by Bitcoin users all around the world. When you spend Bitcoins, your transaction sent to everyone and they check it against the ledger. The transaction is added to the ledger when everyone agrees that it is valid. Once it has been validated and added to the ledger, the receiver knows that the bitcoins have been received. This process normally takes an average of 10 minutes.
