Bitcoin terminology can be confusing because the word Bitcoin is used to simultaneously denote three different things. First, Bitcoin refers to the underlying blockchain technology platform. Second, Bitcoin is used to mean the protocol that runs over the underlying blockchain technology to describe how assets are transferred on the blockchain. Third, Bitcoin denotes a digital currency, Bitcoin, the first and largest of the cryptocurrencies.
The blockchain is the decentralized transparent ledger with the transaction records—the database that is shared by all network nodes, updated by miners, monitored by everyone, and owned and controlled by no one. It is like a giant interactive spreadsheet that everyone has access to and updates and confirms that the digital transactions transferring funds are unique.
The middle tier of the stack is the protocol—the software system that transfers the money over the blockchain ledger. Then, the top layer is the currency itself, Bitcoin, which is denoted as BTC or Btc when traded in transactions or exchanges. There are hundreds of cryptocurrencies, of which Bitcoin is the first and largest. Others include Litecoin, Dogecoin, Ripple, NXT, and Peercoin; the major alt-currencies can be tracked at http://coinmarketcap.com/ .
The key point is that these three layers are the general structure of any modern cryptocurrency: blockchain, protocol, and currency. Each coin is typically both a currency and a protocol, and it may have its own blockchain or may run on the Bitcoin blockchain. For example, the Litecoin currency runs on the Litecoin protocol, which runs on the Litecoin blockchain. (Litecoin is very slightly adapted from Bitcoin to improve on a few features.) A separate blockchain means that the coin has its own decentralized ledger (in the same structure and format as the Bitcoin blockchain ledger). Other protocols, such as Counterparty, have their own currency (XCP) and run on the Bitcoin blockchain (i.e., their transactions are registered in the Bitcoin blockchain ledger). A spreadsheet delineating some of the kinds of differences between Crypto 2.0 projects is maintained here: http://bit.ly/crypto_2_0_comp .
Even without considering the many possible uses of Bitcoin and blockchain technology, Bitcoin, at its most fundamental level, is a core breakthrough in computer science, one that builds on 20 years of research into cryptographic currency, and 40 years of research in cryptography, by thousands of researchers around the world.
Bitcoin is a solution to a long-standing issue with digital cash: the double-spend problem . Until blockchain cryptography, digital cash was, like any other digital asset, infinitely copiable (like our ability to save an email attachment any number of times), and there was no way to confirm that a certain batch of digital cash had not already been spent without a central intermediary. There had to be a trusted third party (whether a bank or a quasibank like PayPal) in transactions, which kept a ledger confirming that each portion of digital cash was spent only once; this is the double-spend problem. A related computing challenge is the Byzantine Generals’ Problem, connoting the difficulty of multiple parties (generals) on the battlefield not trusting each other but needing to have some sort of coordinated communication mechanism.
The blockchain solves the double-spend problem by combining BitTorrent peer-topeer file-sharing technology with public-key cryptography to make a new form of digital money. Coin ownership is recorded in the public ledger and confirmed by cryptographic protocols and the mining community. The blockchain is trustless in the sense that a user does not need to trust the other party in the transaction, or a central intermediary, but does need to trust the system: the blockchain protocol software system. The “blocks” in the chain are groups of transactions posted sequentially to the ledger—that is, added to the “chain.” Blockchain ledgers can be inspected publicly with block explorers , Internet sites (e.g., http://www.Blockchain.info for the Bitcoin blockchain) where you can see a transaction stream by entering a blockchain address (a user’s public-key address, like 1DpZHXi5bEjNn6SriUKjh6wE4HwPFBPvfx ).