The true beauty behind Factom and its brilliant design
The early developers of blockchain technology made a significant contribution to the world of mass computing and data processing. Blockchain, as developed by the mysterious and infamous Satoshi, is a viable solution for record keeping for many data processing solutions.
Blockchain is a type of computer database for which the primary innovation is the ability for untrusting parties to agree on the state of the data it holds. Once data is placed inside the blockchain it cannot be changed – it becomes immutable. Amazingly, this technology enables us to record the entire world’s data securely. However, despite the amazing potential for blockchain technology, there are legal and financial limitations if the technology is to be incorporated into business processes. Most notably:
- Many companies can’t hold cryptocurrencies for regulatory or internal policy reasons.
- The extreme volatility of cryptocurrencies could adversely impact the financial budgeting functions of any business.
To address these issues, Factom developed an open-source protocol that utilizes the immutability and security of Bitcoin’s blockchain, to efficiently record and secure data.
Its decentralized network uses 65 Authority Set Nodes (or servers). Federated servers comprise the majority at 33 and are the ones that provide security and write data to Factom’s blockchain. The other 32 servers are considered Audit servers, which perform the same function of Federated servers but are not allowed to write information onto the blockchain. In return, the Authority Set Nodes are paid in Factoids (FCT), Factom’s publicly tradable tokens, set by the market. The protocol compensates the servers for their ‘work’ at a rate of 73,000 FCT each month, shared equally between all 65 nodes.
Factom is its own unique protocol ultimately designed to bring forth more transparency and honesty in how we record information or data. Anyone or any business can post (and later review) information on the Factom protocol through the purchasing of entry credits through a third party or by burning their own Factoids. This innovation of the two-token system employed by Factom will change how businesses and individuals interact with the blockchain.
Factom’s protocol is able to organize all the data into entry blocks (an entry block can contain multiple entries), which are part of a greater chain. These entry blocks are then organized and placed into directory blocks, where users can pull only the data that is relevant to them. These directory blocks end up storing millions of bits of data in a single hash and become apart of the blockchain every 10 minutes.
The second part of the two-token system is the creation of Entry Credits (EC), which facilitates the entry of data onto the Factom Protocol. This effectively isolates the tradeable token from the ability to use the protocol.
In this manner, Factom is able to offer the opportunity for businesses to utilize the benefits of blockchain technology without having to make transactions in cryptocurrencies.
A single Entry Credit allows entry of up to 1kb of data at a fixed cost of $0.001. For example, if one FCT is worth $1.00 and you burn it, you get 1,000 EC. Alternatively, if one FCT is worth $10.00 and you burn it, you get 10,000 EC. This allows for companies to effectively budget the cost to utilize the Factom Protocol and avoid the volatility associated with the use of cryptocurrency.
Factoids represent the right to use the protocol to record data and thus are used to purchase Entry Credits. As Factoids are destroyed to create Entry credits, Entry Credits get destroyed once the data is entered on the blockchain.
Although, non-transferable, Entry Credits can be acquired through 3rd party services that can perform the transaction of dollars into Factoids, and finally into Entry Credits. This eliminates the need for companies to have any holdings in cryptocurrency.
Using Factoids to create Entry Credits creates a relationship between the usage of the Factom platform and the market price of the tradable token. With a 73,000 FCT fixed supply generated each month, there will be a balance created based on the demand for data being stored on the platform. Theoretically, this means the market price of Factoids will increase in line with the usage of the Factom protocol.
Factoids and Entry Credits are the foundation of this secure two-token system and represent two parts of the same structure, but with different purposes. Factoids serve as the internal scarcity token used to decentralize and pay the system, while Entry Credits are used, in coordination with Factoids, but perform the right to make entries into the Factom protocol.
The ingenuity of the Factom protocol along with the two-token system, effectively solves the legal and financial limitations placed on companies, allowing for them to benefit from the use of blockchain technology. From an investment viewpoint, the higher price for Factoids caused by the increased usage of the Factom platform makes the Factom token quite an alluring option and a potential game changer in the world of cryptocurrencies.