I have spent a lot of time reading the forum, mining in the background with 2 x 5950 GPU's and taking a significant look around the various people selling goods accepting bitcoin, as well as playing a little on Mt.Gox.
Just wanting to post my outline of explaining bitcoin to my friends that I wrote for myself, and found that I needed to register and wait...
So here I am waiting...
Below I have pasted a section from my explaining bitcoin to my friends - if you feel that you can whitelist me then I can participate in the discussions - please.
Bitcoin is a system that safely protects your balance and transactions by making use of individuals and the Internet rather than a commercial system. As a result, you have a currency that has almost zero transaction fees, and the flexibility to move money around the world instantly. There are no overheads to receive money, no merchant accounts, and no ability for any government to freeze your account or block you from receiving payments. The inflation rate is fixed, and therefore the value of your money cannot be diluted by a government deciding to print more money. In fact, the value of your bitcoin is only affected by how many people trust it and how many people want it. If trust, confidence and demand increases, the value of 1 bitcoin in relation to other currencies will also go up proportionality - potentially making it a very attractive investment.
Because money can be transferred with no delay and at almost zero cost, this opens up opportunities for a whole new way of trading. 4% fees to paypal to buy something off ebay is no longer needed - as paypal is no longer needed. Micropayments are now possible, and reddit have made it possible to reward good posts with a bitcoin 'tip' which is the start of an interesting concept. It has the properties of cash, but it's electronic. Nobody takes a cut when you give somebody a tenner, and nobody needs to help you receive the tenner. No other electronic payment system has the ability to do this.
Its properties of being beyond the reach and impact of governments along with no-middle man to charge transaction fees makes it an interesting and attractive proposition.How can we trust it?
In the same way as normal banks protect the history of your transactions, and ultimately your bank balance. Trust that your money is safe is a pillar of any electronic financial system. The job of the banks is to ensure that the computer systems safely and reliably store your bank balance and the history of transactions that go with it.
With Bitcoin, the balances and history of transactions must also be safe for it to work.
Roughly every 10 minutes, all the transactions that have occured in that time are wrapped up into a mathematical block and attached to all the previous blocks. This gives an authorized chain of transactions which is the 'truth' of the bitcoin currency. The math behind it ensures that once the block has been attached to the chain it cannot be modified or tampered with.
Each transaction is also verified before it is included in this block to ensure that the same money cannot be spent twice. Balances are derived from the total of all transactions already stored in the block chain, rather than the traditional method of a database storing a balance value.
This process mathematically ensures that the system is safe, without relying on any government to back it. But without any organization backing it, somebody needs to do the mathematical number crunching to validate the transactions and wrap them up into a 'block'. Therefore a rewards system is built into the system for people who are willing to do this number crunching, and the more people doing it, the more reliable the system is.
Each time a block is wrapped up, the person who does this is rewarded with Bitcoins. People are the system!
But it's not really printing money as some have suggested. There are a limited number of blocks (1 around every 10 minutes), and a fixed reward for creating a block (at the moment this is 25 bitcoins). All the people working to create blocks share this fixed reward. The more people doing it, the less there is available per person.
How does it work?
There are plenty more details about the mathematical number crunching and how this part of the process works - but I think that most of us can treat this as a black box unless you are considering mining yourself.
Level 1 - Explanation: http://bitcoin.org/en/how-it-works
Level 2 - The Mathematics behind it. https://www.weusecoins.com/