Bitcoin is a digital currency that allows for peer-to-peer transactions without middlemen like banks. It uses cryptography and a peer-to-peer network to generate and verify transactions. New bitcoins are generated through a process called "mining" where users solve complex math problems. While bitcoin offers anonymity and low fees, it is also volatile, unregulated, and has been used for illegal activities online like drug purchases. The future of bitcoin is uncertain as governments are concerned about taxation and lack of control over the currency.