FACTOM PROTOCOL

CONTENTS:

> INTRO

> HISTORY

> DESIGN FEATURES

> TOKEN SYSTEM

> RECEPTION

> USAGE

INTRO

Factom is a distributed, autonomous blockchain protocol that secures and manages data, documents, and systems. Development began in 2014, and is managed by the United Kingdom nonprofit Factom Foundation.[1] As of September 2017, the Factom Protocol has been used to secure more than 125 million records.[2]

According to the OracleTimes: “Unlike Bitcoin whose blockchain is used for currency transactions only, Factom comes with an enhanced blockchain that allows anyone to add new entries to the blockchain, including contracts and agreements in the form of scripts and applications. In other words, Factom creates an additional data layer (a record-keeping system) on top of the blockchain. … The Factom protocol provides developers with a quick, cost-efficient, and easy way of creating applications on the bitcoin blockchain and can be used to power a large range of applications such as audit systems, medical records, supply chain management, voting systems, property titles, legal applications, and financial systems. Factom has already released a number of products created for enterprise use including a data protection tool, an identity solution and distributed data storage service similar to a more traditional database.”[3]

And CryptoCompare writes: “For the first time, the Factom network allows for a base-layer of trust to exist across all data, everywhere. If successful in its ambitions, Factom could become a ubiquitous protocol layer in an increasingly digitized world.”[4]

The Factom Protocol’s native, tradable cryptocurrency tokens are called Factoids (ticker: FCT). FCT’s market cap is approximately $250 million (as of September 15, 2017).[5] The token is listed on seven exchanges, including the fifth and sixth largest exchanges in the world by volume, Bittrex and Poloniex.[6]

Factom’s founders include Paul Snow (Chief Architect), David Johnston (Chairman of the Board), Brian Deery (Chief Scientist), Peter Kirby (CEO), and Tiana Laurence (CMO).[7] The team is now comprised of [TBD] full-time employees [source needed], and is headquartered in Austin (Tex.), with satellite offices in Sunnyvale (Calif.), Beijing, Shanghai, and London.[8]

HISTORY

The origins of the Factom Protocol date back to January 2014, during a conversation between entrepreneur David Johnston and developer Paul Snow. According to the founders: “We set out with a simple goal, to create, design and build products to make the world more transparent and honest.[9]” In June of that year, coding began,[10] and in November 2014, Factom released their white paper.[11]

The project’s development is centered around three Milestones. The first Milestone—the creation of the Genesis Block, inaugurating the official launch of the protocol—took place on September 1, 2015.[12] 

Milestone 2, or “Factom Federation” as it was dubbed, was announced December 30, 2016.[13] Milestone 2 includes the following protocol updates:

> Eight Federated Servers—Increased censorship resistance and globally distributed.

> Eight Auditing Servers—Eight new auditing servers supporting the network.

> Confirmations in seconds instead of minutes—600X improvement

> More transactions per second—5X improvement.

> Merkle Proofs More Accessible—Proof of Existence made easy with the factomd API.

> Distributed Peer to Peer Network—Resistant to denial of service type attacks.

> Graphic Control Panel For Nodes—Easily see the activities of the Factom network.

> BIP 44 Wallet Support—Factoids can now be integrated into a wider range of wallets.

> Robust Testing Infrastructure—New public test net and suite of testing tools.

> Support For Multiple Blockchains—Bitcoin and now the Ethereum network.[14]

        

The upcoming and final Milestone 3 (date TBA) will include the election protocol for determining who runs the network’s 32 Federated Servers and 32 Audit Servers, and will result in “a decentralized system with federated servers under independent control.”[15]

DESIGN FEATURES

“Honesty is subversive.” —Paul Snow (used as epigraph to the Factom white paper)[16]

“Factom had implemented something like SegWit long before the November 2015 announcement.” —Brian Deery[17]

According to CryptoCompare: “In the most condensed sense, Factom helps ensure data integrity. The Factom network does this by allowing hashes of large amounts of data to be stored on secure blockchains, such as those of Bitcoin and Ethereum (though Factom itself is blockchain-agnostic).”[18] The Protocol was in fact designed as a remedy for some of the limitations of current blockchain technology, and focuses particularly on improvements in the speed, cost, and bloat of transactions.[19] 

The Factom white paper describes the four “primary interactions” with the Protocol as:

“> 1. Application Owner purchases Entry Credits with Factoid

> 2. Application records an Entry

> 3. Factom Servers create Entry Blocks and Directory Blocks

> 4. Factom secures an anchor (hash of the Directory Block) onto the blockchain”

The Protocol executes the two main processes of blockchain mining—the recording and auditing of entries—into two tasks:

“> 1. The Factom servers accept Entries, assemble them into blocks, and fix their order. After 10 minutes, the Entry ordering is made irreversible by inserting an anchor into the Bitcoin blockchain. Factom does this by creating a hash of the data collected over the 10 minutes, then recording the hash into the blockchain.

> 2. The auditing of Entries is a separate process which can be done either with or without trust. Auditing is critical, since Factom is not able to validate Entries before they are included in the Factom dataset.”

The servers that form the engine of the Factom Protocol operate in a dynamic manner. According to the white paper, the network of Federated servers “rotate responsibility for different aspects of the system. No single server is ever in control of the whole system, but only a part of the system. And no server is permanently in control of any part of the system; the responsibility for each part of Factom cycles among the servers each minute.”[20] As a result, servers have minimal knowledge about the content of the Entries being recorded.

Additional attributes of the Factom Protocol include:

> Applications can be written in any programming language and interact with the Protocol via APIs.[21]

> The Protocol is open; anyone can develop applications for it.

> Factom has a minimal ruleset for adding entries, and efficient rule execution.

> Chains operate relatively autonomously, meaning that proofs against one chain do not require knowledge of other chains.

> Users of the Protocol are able to prove the negative—something only possible in a bounded system like Factom’s;[22] the ability to prove the negative is essential to many institutional operations.[23] 

TOKEN SYSTEM

Factom conducted an Initial Coin Offering (or “ICO”) from March–May 2015, garnering the project 2,278 bitcoin (approximately $540,000 USD at the time).[24] During the ICO, 8,753,219 FCT were purchased by supporters.[25] The remaining FCT will be released to the Servers following Milestone 3, at a rate of 73,000 FCT per month.[26]

The Protocol’s two native tokens are Factoids (FCT), and Entry Credits (EC). Use of the Factom Protocol requires EC. One EC allows a user to secure one kilobyte of data, and 10 EC allows a user to create their own chain.[27] EC can only be generated by destroying (or “burning”) FCT, or by purchasing them direct from Entry Credit Service Providers.[28] According to the Factom white paper, “Factoids are implemented in much the same way Bitcoin is implemented, allowing for multi-signature security, multiple inputs, multiple outputs, etc.”[29]

Additional aspects of the relationship between FCT and EC can be summarized as follows:

> The price of EC is fixed by the Protocol at $0.001 USD.

> The price of FCT is determined by the open, publicly traded market.

> The conversion rate of FCT to EC is based on the price of FCT. For instance, if the price of FCT is $10, one FCT can be burned to create 1,000 EC. If the price of FCT is $100, one FCT generates 10,000 EC, and so on. The official price of FCT at the time of conversion is determined by an oracle.”[30] 

> FCT are transferrable, while EC are non-transferrable.[31]

The dual-token system was designed so that customers can budget for their future usage expenditures (given that the cost of securing X amount of data remains constant). According to Factom’s founder and chief architect, Paul Snow: “Someone that wants to use the Factom protocol never has to touch a tradable token. They can provide an Entry Credit address to a third party that converts Factoids to Entry Credits to charge their Entry Credit Address. … By allowing servers to set the conversion rate from Factoids to Entry Credits, Entry Credit value can be kept absolutely stable relative to dollars (or some other currency) in the real world, no matter what happens with the Factoid token. This is important for applications, because it allows them to plan their costs over time without worry about currency value fluctuations.”[32]

RECEPTION

Reception of the Factom Protocol has been widespread and generally positive, and has included coverage from The Wall Street Journal,[33] MIT Technology Review,[34] BBC.com,[35] The Irish Times,[36] Reuters,[37] The Economist,[38] and International Business Times.[39]

        

The Huffington Post reported: “Factom offers the promise of immutable records. This could be huge for the (trillion-dollar) mortgage industry, banks and audit records, retail with huge databases like Target, studios with enormous catalogs of movies like Warner Bros., and governments for historical documents. Factom’s competitors are currently bounded by only proving the positive (e.g. ‘can we show X has existed in the chain?’), which would pertain to proof of existence, integrity, ownership, etc.—which is limited for the overall problem they are trying to solve. Factom can prove both the positive and the negative and see if a piece of information didn’t exist at a certain period in time, or whether it’s the latest version. Factom could change how major record keepers keep records and ensure eternal existence of all records.”[40]

NEWSBTC wrote: “The Factom project has been attracting a lot of attention over the past year. … By integrating the Ethereum blockchain [in addition to the Bitcoin blockchain], Factom will ensure data is secured at all times. … Exciting times are ahead for Factom.[41]

And billionaire investor Tim Draper was quoted by CoinTelegraph as saying: “‘Factom is in the sweet spot (right place right time) where the Blockchain is mature enough and corporate clients are desperate enough to fight against the hackers and make their businesses safe and transparent.’”[42]

USAGE

The Factom Protocol has already been used by a broad swath of industries. One of the first applications created for the Protocol, developed by Factom Inc.[43]—an associated, for-profit company—is Harmony, a product designed to reduce compliance, litigation, and documentation expenses for the mortgage industry.[44]

According to International Business Times, Harmony “specializes in providing a data layer for the blockchain by which users can manage data. Factom Harmony provides a single permanent document catalogue that eases the pain and cost of audits, file reviews, lost documents, post-closing and litigation.”

Nasdaq.com wrote: “By increasing the efficiency of document management, Harmony will allow a seamless transaction process between lenders and brokers, without them having to worry about lost documents, altered agreements or incomplete records.” They go on to write, “As an all-inclusive solution, Factom Harmony:

> creates a permanent record and index of final loan documents, making audits smooth by reducing quality control, due diligence and review time;

> reduces costs by creating a single source that organizes the final documentation and provides cryptographic truth that each document is an authentic copy;

> provides access control to multiple parties that can collaborate under audit conditions and exceptions, and includes an immutable audit trail of all actions on each document in real-time, giving a true history of every loan;

> opens a secure audit room or due diligence deal room that can be tracked on the Factom blockchain.”[45]

Factom Inc. has also received grants from the US Department of Homeland Security “to advance the security of digital identity for Internet of Things (IoT) devices” with the Factom Protocol,[46] as well as from the Gates Foundation “to build a Proof of Concept prototype of a digitized medical record system for individuals living in remote developing areas of the world.”[47]

Additional companies using the Protocol include Smartrac, which has partnered with Factom Inc. to release their dLoc product. dLoc “bridges the physical and digital world, as a reliable way to secure information on paper-based documents. It is composed of Smartrac’s IoT platform Smart Cosmos, its near-field communication (NFC) transponders, and Factom’s blockchain technology.[48]

Other companies currently using the Factom Protocol include:

> iSoftStone: “to offer a data storage, auditing, and verification layer for several regions in China[49]”;

> Ancun: “to integrate Factom’s blockchain tech with Ancun’s electronic data notarization services[50]”;

> Rongdu Technology: “to begin integrating Factom’s distributed data layer with Rongdu’s Fintech solutions”[51];

> SmartContract: “to give Bitcoin and Ethereum smart contract developers access to Factom data[52]”;

> DataYes and Intrinio: “to verify and audit data from the U.S. and Chinese financial markets, respectively.”[53]


[1] https://www.factom.com/devs/factom-foundation

[2] https://www.factom.com

[3] http://oracletimes.com/2017/08/22/building-a-more-transparent-world-the-meteoric-rise-of-factom-fct/

[4] https://www.cryptocompare.com/coins/guides/factom-past-present-and-future/

[5] https://coinmarketcap.com/currencies/factom/#charts

[6] https://coinmarketcap.com/exchanges/volume/24-hour/#native

[7] https://www.factom.com/about

[8] https://www.cryptocompare.com/coins/guides/factom-past-present-and-future/

[9] https://www.cryptocompare.com/coins/guides/factom-past-present-and-future/

[10] https://www.factom.com/about

[11] https://github.com/FactomProject/FactomDocs/blob/master/whitepaper.md

[12] https://www.factom.com/blog/technical-update-factom-genesis

[13] https://www.factom.com/blog/the-great-migration-1

[14] http://www.ibtimes.co.uk/factom-releases-next-version-its-blockchain-factom-federation-network-1597411

[15] https://www.factom.com/about/faqs

[16] https://www.factom.com/devs/docs/guide/factom-white-paper-1-0

[17] https://keepingstock.net/factom-has-had-segwit-from-the-beginning-due-to-a-compromise-db72b388d99e

[18] https://www.cryptocompare.com/coins/guides/factom-past-present-and-future/

[19] https://www.factom.com/devs/docs/guide/factom-white-paper-1-0

[20] https://www.factom.com/devs/docs/guide/factom-white-paper-1-0

[21] https://docs.factom.com/api

[22] https://www.factom.com/devs/docs/guide/factom-white-paper-1-0

[23] https://www.factom.com/devs/docs/guide/factom-white-paper-1-0

[24] ttps://www.coindesk.com/blockchain-factom-raises-1-1-million-crowdsale/

[25] https://www.factom.com/devs/tokens/factoids

[26] https://multicoin.capital/2017/09/07/fct2017/

[27] https://shop.factom.com/

[28] https://shop.factom.com/

[29] https://www.factom.com/devs/docs/guide/factom-white-paper-1-0

[30] “The conversion rate of Factoids to Entry Credits will be determined by an oracle. In computer systems, oracles are processes that provide information to a system that cannot be verified or validated by the system. The oracle in this case maintains the conversion rate of Factoids to Factom Entry Credits at a cost 1/10 to 1/100 the cost of a comparably sized Bitcoin transaction.”

[31] https://forum.bitcoin.com/ama-ask-me-anything/i-am-paul-snow-the-architect-of-factom-and-chair-of-the-texas-bitcoin-conference-ask-me-anything-t4026.html

[32] https://forum.bitcoin.com/ama-ask-me-anything/i-am-paul-snow-the-architect-of-factom-and-chair-of-the-texas-bitcoin-conference-ask-me-anything-t4026.html

[33] http://www.ibtimes.co.uk/how-blockchain-simplifying-us-mortgage-market-1609630

[34] https://www.technologyreview.com/s/537246/why-bitcoin-could-be-much-more-than-a-currency/

[35] http://www.bbc.com/news/technology-32781244

[36] https://www.irishtimes.com/business/innovation/how-the-isle-of-man-aims-to-become-the-bitcoin-capital-of-the-world-1.2188077

[37] http://www.reuters.com/article/us-tech-bitcoin-blockchain/betting-on-blockchain-firms-seek-fortune-in-bitcoins-plumbing-idUSKCN0PW1RT20150722

[38] https://www.economist.com/news/briefing/21677228-technology-behind-bitcoin-lets-people-who-do-not-know-or-trust-each-other-build-dependable

[39] http://www.ibtimes.co.uk/factom-inks-another-deal-china-this-time-blockchain-notarisation-services-1545591

[40] http://www.huffingtonpost.com/entry/10-top-cryptocurrency-investors-share-their-favorite_us_599bb27de4b0521e90cfb4e9

[41] http://www.newsbtc.com/2016/09/12/factom-will-use-bitcoin-ethereum-blockchain/

[42] https://cointelegraph.com/news/this-blockchain-startup-can-become-greater-than-ibm-oracle-and-palantir-combined

[43] https://www.crunchbase.com/organization/factom#/entity

[44] https://www.factom.com/products/harmony

[45] http://www.nasdaq.com/article/factom-harmony-takes-on-the-mortgage-industry-cm795587

[46] https://www.dhs.gov/science-and-technology/news/2016/06/17/st-awards-199k-austin-based-factom-inc-iot-systems-security

[47] https://www.gatesfoundation.org/How-We-Work/Quick-Links/Grants-Database/Grants/2016/11/OPP1159449

[48] https://www.smartrac-group.com/pr/smartrac-launches-dloc.html

[49] http://www.econotimes.com/Factom-iSoftStone-Collaborate-To-Bring-Blockchain-Technology-To-Chinas-Smart-City-Solutions-156317

[50] https://www.cryptocompare.com/coins/guides/factom-past-present-and-future/

[51] https://www.factom.com/blog/rongdu-technology-and-factom-inc-partnership

[52] https://www.cryptocompare.com/coins/guides/factom-past-present-and-future/

[53] https://www.cryptocompare.com/coins/guides/factom-past-present-and-future/

Factom Inc
Established 2014
Ticker FCT
CEO Paul Snow
Director of the Board David Johnston
Traded Markets

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