It's a way to use the bitcoin blockchain as a non-centralised way to record the fact that you were in possession of a particular file at a particular time, without exposing what that file is, or who you are.

The problem has been around for a long time, especially when dealing with semi-intangibles like Priority for scientific discoveries, or proof of first invention for patents[1]

One solution is to present proof to a trusted but private notary, who can copy or stamp or otherwise indicate that he has seen your documents and so they must have existed at least since the date indicated.

But counterfeiting, forgery, untrustworthy notaries, etc, all make this a less than ideal solution. So we add computers & crypto.

The document in question is condensed down to a single cryptographic hash, which (should[2]) to all intents and purposes be unique for a given document, despite being only a few tens of characters long, regardless of the size of the original input.

This hash then serves as proof[3] that you have the source document, without anyone being able to turn it back into the original document. This is a very one-way process.

Then, you need to find someone to vouch for your hash and indicate when they first saw it. You can do this with lawyers/notaries again as before[4], which partly solves the forgery problem, but not the trust one.

The solution proposed here is to store that hash in the bitcoin block-chain, which is a distributed log of all transactions on the bitcoin network, which has 3 nice properties:

1. It's append-only. Once your hash is encoded in there, it's staying there as long as bitcoin exists[5].

2. It's peer-to-peer/distributed. There's no single controlling organisation you need to trust for answers.

3. It's updated regularly enough that timestamps can be relatively fine-grained.

So you stuff it in there using this tool or whatever, and then X years hence when you need to prove you'd actually created that file in 2013, you should be able to prove that to most people's satisfaction.

This is a loose take on the matter and glosses over whole swathes of other complexities involved, but is probably close enough for [non]government work :)

[1] That is, who discovered/did something first. You may want to be able to claim you did in future, but without making it public at the time, because you might tip your rivals off to the idea before you've fully developed it.
See: https://en.wikipedia.org/wiki/Scientific_priority

[2] Breaking (or "colliding") hashes is a whole subfield of cryptography research, and some pretty impressive things have been done there. It's why you probably shouldn't use MD5 for anything nowadays, for example. But again, we'll handwave "Done Properly = unique identifier".

[3] Well, in the same way that a password proves that you're the/a person who knows that password - if you did it right and never told anyone, it should be exclusively you. But if it leaks somehow, others could represent the hash as belonging to something they own. But if they only have the hash and not the original source document, there are relatively easy tests that could distinguish them. That's not very important here though.

[4] https://en.wikipedia.org/wiki/Trusted_timestamping

[5] well, mostly. But it's really hard, and the same capabilities let you defraud the rest of the bitcoin network with double-spending and whatnot, so unless your timestamp priority is super-important, you're probably ok.