Notes

Applications
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Bitcoin provides a virtual currency system for transferring a value from one party to another without using a central banking system.: 223–225, 234  Its usefulness is limited by the need to verify each transaction using a central authority.: ch. It is also not anonymous because transactions are permanently stored in the blockchain using cryptographic hashing techniques.

Transaction authentication

The authentication of a transaction is the process of confirming that the transaction has not been modified after being sent from the source computer to the destination computer. Bitcoin uses digital signatures to authenticate a transaction. Each signature is based on the hashing of a large number of input data. If a change has been made to the transaction, the modified data would yield a different hash value, and as a result the digital signature would fail. The authentication is determined when the hashing algorithm is run, so the sender effectively computes a signature for the transaction, and the receiver of the transaction can check to see that the signature is valid by comparing it to the signature that is provided by the sender. For more details, see digital signature.

Uses and applications

Bitcoin is the first successful implementation of distributed timestamping and the first use of a blockchain as a distributed timestamping service.

Timestamping is the process of providing a cryptographic proof to another party that something occurred at a specific date and time. With timestamping, the integrity of an object is guaranteed by the system, and thus no reliance on a third party for integrity assurance is required. Timestamping services are critical in financial transactions, such as timestamping stock trades (clearing house), timestamping land title deeds, or timestamping government bonds. Bitcoin and other blockchain-based timestamping systems are the first distributed timestamping systems.

Distributed timestamping allows a third party to prove that some information was indeed created at a given time. Timestamping can also be achieved by using challenge-response protocols, for example. Many of the early timestamping systems used centralized digital clocks, and as a result they had a limited lifetime and did not scale well. As a solution, blockchain-based timestamping is a more scalable and robust approach.

Bitcoin uses a timestamping mechanism based on cryptographic proof-of-work. The system is commonly described in terms of Merkle trees, a data structure that allows efficient verification of the authenticity and timestamps of binary files or other data structures in a trustless manner. As a result, Bitcoin timestamping can
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