What Is Bitcoin?

Described as a crypto-currency implemented entirely with open source specifications and software which relies on a peer-to-peer network for both transaction processing and validation, i still have no idea what Bitcoin is but apparently the established financial institutions are becoming wary of it and that has to be a good thing.
One of the side-effects of the catastrophic failure of the banks is the interest in a virtual currency called Bitcoin but i have yet to find a clear explanation of exactly what it is and how it works, or rather an explanation that i can understand.
What i can glean is that Bitcoin is not a currency and that it is not run or administered or has any connection to a central bank such as the Bank of England so therefore free from government regulation and interference. There are also only a possible 21 million Bitcoins available at any time in the world and there are currently 11m Bitcoins currently in circulation.
The first step is to download a ‘wallet’ on your computer or mobile and then buy Bitcoins from places such as coinbase or Bitcoin Exchange. Other ways to get new coins is to either buy them off someone else, or 'mine' them by putting your computer to work at cracking a code that, once resolved, releases a preset number of Bitcoins into your virtual wallet.
When you have a wallet brimming with Bitcoins, you can then visit the places that accept Bitcoins although i couldn't find any of the mainstream retailers who currently accept them.
A few months ago a Bitcoin was worth nearly £250 but today its worth just over £80, according to Bitcoin exchange MtGox.
The Bitcoin Foundation, a body set up to maintain standards across the Bitcoin community, says the Bitcoin is still finding its equilibrium which is why there are such wild fluctuations in the worth of the Bitcoin.
While i am all for sticking to the banks who have caused so many of the problems, there is a downside. There have been several large thefts of Bitcoins, and unlike traditional currency they are not protected by insurance and the thefts are almost impossible to trace so there is almost no chance of you ever getting your money back if it is stolen.
Based on all the evidence, i don't think i will be exchanging my pounds for Bitcoins anytime soon because unless i am very much misreading the whole thing (which i admit is very likely), it just sounds far too complicated, there are only a limited amount of places you can spend it and it was created by a hacker and would be worried that as soon as a certain amount of Bitcoins have been 'mined', there will be a very rich hacker somewhere and i will be left with an empty wallet.