Bitcoins: What exactly is cryptocurrency and how it works?

Before we begin let us understand what exactly is cryptocurrency?
Well, it is just like cash but in a digital form and can be used to carry on transactions where it is excepted. Again, just as our regular banknotes use some security features to safeguard us from piracy, cryptocurrencies use cryptography (as the name suggests) to secure all the transactions and verify them.

UNDERSTANDING HOW CRYPTOCURRENCY WORKS:

let us understand the working of bitcoin or any other cryptocurrency by a simple example,

Imagine you and I are sitting in a Park, I have a file with me containing some pages with something written on them in a code language, which we both believe is valuable. We made an exchange deal and I exchanged a few pages from my file for your mobile phone. Now as you have some pages say 10, you exchanged 5 of them to buy a house from someone who believes in their value. And the rest of the pages for another set of a commodity.
Okay, now consider this same transaction assuming a digital file containing some digital pages written in a code language.
The code language is termed as Cryptography and the page is the currency.
This is what bitcoin or cryptocurrency is, a form of an electronic file created according to an algorithm stored somewhere in the cloud storage.
 Here few points are to note:

1) Has anyone witnessed our transaction?

Yes, there is a community of miners working all day long to verify your transaction and earn some bitcoins in return, this is called mining. But again the involved parties remain private as they transact under pseudonyms called Bitcoin addresses. We can see time, volume, and involved addresses, but don't learn the individual's private information.
 This is what blockchain has to offer: decentralisation.
what is BLOCKCHAIN? MINING?? well, that is a topic of later discussion.

 2) What are we considering this file(basically the pages) that we are making monetary transactions over it?Why do we value bitcoin?? 

Well, values are subjective and to understand why bitcoins are considered as a valuable cryptocurrency we first need to understand why currencies have value.
A commodity has a value because people want it for a reason or another, and currency acts as a medium of exchange.
(for example if you want to buy a computer and have a useless sofa at your home to discard, without currency you will have to find someone with a computer who is in need of a sofa and exchange the sofa you have with his computer, but with the use of currency like rupees, dollar etc. you can just sell the sofa to anyone and buy a computer with that money)
Rupees, dollar etc. have value because government grant them legal tender status and people transacts with them. But what about bitcoins?
Bitcoins are no valuable commodity like platinum nor it is a legal tender but they are still valuable just because people accept and trade in bitcoins. It is recognised as a currency by many just as rupees and dollar are recognised by the governments

3)What actual value do those pages ( BITCOINS ) hold?

It's here that I'm reminded of something Warren Buffett's often said,”Price is what you pay, the value is what you get.”.this aspect of bitcoin is pretty fussy, the cryptocurrency sees great variation in its valuation. It is all about the demand and supply, demand increases - price rises and vice versa.
Well this was pretty much about how the cryptocurrencies work but the question is:

Why Cryptocurrency?

 Cryptocurrencies such as Bitcoin is decentralized and limited which is a major factor for many Bitcoin users. Cryptocurrencies like bitcoin is hard for the government to trace and tax again a major reason for which gangs and mafias started using bitcoins and other such cryptocurrencies . Also, unlike money produced by the central banking system, there is a cap set on total Bitcoins, limiting how much the currency can devalue through inflation.I believe this is just the starting of cryptocurrencies and there is a lot more to come.