[pash]

The Wired headline is less misleading than your comment. Information about transfers of ownership will be recorded on a private ledger, and a hash of that information will be inserted into Bitcoin's blockchain, one hash inserted for each transaction.

In other words, the private details of each transaction will be recorded on a proprietary ledger so that those details can remain private. But the fact of each transaction's occurrence will be recorded publicly on Bitcoin's blockchain, and recorded in a form that allows parties privy to the transaction details to verify cryptographically that the entries in the proprietary ledger correspond to the sequence of transactions published to Bitcoin's blockchain. Basically, this scheme uses Bitcoin's blockchain to provide security (immutability) and public accountability while keeping private information private.

(This insert-a-hash scheme is typical of "colored coin" implementations even when privacy is not desired, since each Bitcoin transaction can insert only a small amount of data into the blockchain.)

The amended S3 filing [0] spells all of this out in detail. The most relevant section starts on page 35, and the first paragraph of page 36 describes the core of the scheme:

    In connection with a digital securities transaction, the
    tØ software will publish the transaction to the proprietary
    ledger ... . Concurrently, the tØ software will electronically
    publish the proprietary ledger and commence the process of
    embedding in the Bitcoin blockchain information necessary 
    to mathematically prove the validity of available copies 
    of the proprietary ledger. Specifically, after a set of 
    transactions in our digital securities have been executed 
    and recorded to the proprietary ledger, the Pro 
    Securities ATS will send a de minimis amount of Bitcoin 
    from an ATS-controlled Bitcoin wallet to another ATS-
    controlled Bitcoin wallet using the blockchain protocol. 
    This blockchain protocol provides for an editable field 
    that can be used to implant code or other data within the 
    Bitcoin transaction that will be embedded into the 
    blockchain, and the tØ software will use this field to 
    implant anonymized cryptographic hash functions for the 
    digital securities transactions reflected on the 
    proprietary ledger into the Bitcoin transfer made by the 
    ATS. The blockchain will validate this de minimis Bitcoin 
    transaction and embed it, together with the implanted 
    anonymized cryptographic hash function, into the Bitcoin 
    blockchain. As a result, once the Bitcoin transaction is 
    immutably embedded into the Bitcoin blockchain, an 
    immutable record of the digital securities transactions 
    reflected on the proprietary ledger is also recorded 
    within the Bitcoin blockchain. ...

0. http://www.sec.gov/Archives/edgar/data/1130713/0001047469150...

[joveian]

Interesting, so they are using it as a timestamping service. Whatever bitcoin ends up accomplishing or not accomplishing in the money realm it seems like the distributed timestamping aspect is getting a lot of use. I wish there was a simpler P2P distibuted timestamp only system.

[brighton36]

That's exactly what bitcoin achieved with mining. It's the biggest and probably only innovation of a blockchain. Doing it simpler probably isn't possible.

[joveian]

Timestamping is a different problem since there is no need to prevent double spend and less need for extensive data retention other than by the particular people who care about a particular timestamp. You don't need everyone to agree about anything and can cross reference with arbitrarily many external systems for greater reliability. Two of the papers that the bitcoin paper cites are about distributed timestamp systems, and while they aren't exactly what I am looking for they show some basic ideas.