Factom Review - Blockchains in Suits

Factom provides a data layer for the blockchain. Unlike Storj or Sia that are focusing on improving the cloud storage model, Factom lays emphasis on the immutability of the blockchain. Simply put, Factom provides proof that a certain document or block of data existed at a certain moment in time. This might sound boring at first, until you realize that Factom's technology has the potential to make the world's systems more honest by providing three sources of irrefutable truth: a) proof of existence - that a document existed in a certain form at a certain time, b) proof of process - that a process was carried out in a certain sequence over a certain time and c) proof of audit - that a document, when it changed, has changed according to a predefined set of rules.

Factom has the potential to increase trust and improve efficiency in the dealings of companies with each other, in the dealings of companies with their clients, or in the dealings of public authorities with their citizens. It could for example be used to document land ownership in a way that cannot be tampered with, to curtail war financing by tracking how diamonds change hands from the mine to the final buyer, to track the path that your favorite organic bananas take until they arrive in your fruit basket, or simply to prove to the world that you really got married for the third time back in 2015.

The Technology

Factom focuses on inventorying blocks of data in an way that makes them immutable. In the process, the platform records the time sequence in which these immutable blocks of data were created, and the relationships among blocks, generating an immutable audit trail for data blocks.

To achieve this in an efficient manner, Factom consists of different layers

• "Chains" are used to group application specific data entries. Thanks to the use of chains, a Factom based application does not have to search all records ever entered, it can simply focus on its own application specific chain(s).
• "Entries" are created by the applications that build on top of Factom. They can basically contain anything: text, encrypted data, unencrypted data - whatever the application chooses to put there.
• Every entry is listed in an "Entry Block". Entry blocks are lists of hashes for entries. They are chain specific: each entry block only contains hashes for one particular chain.
• "Directory Blocks" contain a list of entry block hashes. Since each entry block is chain specific, a particular application will look at a directory block first, find the entry blocks for the chains it needs, retrieve the entry blocks, and subsequently maybe retrieve the data for the entries listed in the entry blocks.

Directory blocks are created every minute. Ten of them are summarized by a hash and this hash is stored in the Bitcoin blockchain. This procedure "anchors" the directory blocks in time and makes them immutable. Consequently, the entry blocks AND the individual entries become immutable too, because they are all connected by their respective hashes.

Actual data and communication is handled via a Kademlia-style DHT, a technology that the avid reader should know by now. Factom's P2P network seems to know three contributor roles: full nodes that only store data, "Federated servers" and "Audit servers". Federated servers are responsible for building the actual Factom entries as described above. Audit servers keep tabs on bad behavior on the network. They would for example raise an alert if a Federated server should suddenly start refusing entries that it is destined to accept. Factom's built-in reward system motivates Audit servers to observe bad behavior so that they can be voted up to a Federated server. Federated servers and the other full nodes are rewarded for the services they provide. Server roles rotate over time to prevent abuse and to mitigate possible attacks.

The Economy

Factoids (FCT) are the main internal scarcity token used to moderate and reward the servers that are providing resources to the network. The right to put entries into Factom however is represented by Entry Credits. Factom separates the two value-holding mechanisms, as they serve different purposes. Factoids can be converted into Entry Credits, but not vice versa.

Entry Credits can only be used to buy entries in Factom. They cannot be transferred, or, for example, traded at an exchange. Users of Factom who are not allowed to deal with cryptocurrencies for regulatory reasons can buy Entry Credits directly to avoid having to deal with FCT tokens. Whenever Entry Credits are created, FCT tokens are burnt (by the network), and whenever Entry Credits are used, FCT tokens are created (by the network). Those newly created FCT tokens are then used to reward the servers providing resources to the network. An Oracle is used to fix the price of Entry Credits. Currently, $0.001 per entry are being discussed.

The complex interaction between FCT, Entry Credits and the Factom network makes attaching a price to FCT tokens challenging. However, since FCT tokens are deeply linked to the actual inner workings of Factom, we can assume that the market price of the tokens will indeed be based on an assessment of the market actors concerning the future success of Factom: if the market assumes that the network will soon be running "at full steam", meaning that the number FCT destroyed by the creation of Entry Tokens is equal or higher than the number of FCT created to reward the system actors, the price of FCT will rise. Otherwise, it will fall. Or even simpler: if the market assumes that the network needs to pay more for its services than it can gain from the sale of Entry Tokens, the price of Factoids will decline, otherwise, it will increase.

Factom is still working towards milestone 3, the first release of the fully functional network with all components in place. After milestone 3, 73'000 FCT will be created per month to reward the planned number of servers supporting the network. At the current price of $3 per FCT, this would mean that roughly 219'000'000 entries at $0.001 each would have to be sold for the total number of FCT to remain stable. This number might sound high at first, but we have to keep in mind that the system is designed to handle realtime-data in domains that could eventually generate billions of individual entries per day. Right now, the system has about 4M entries total, some 20'000 entries are added per day, at a growing rate.

Factom sold about 4.4M Factoids in a crowd sale back in May 2015 and distributed another 4.4M to early purchasers and early contributors. At the time, the crowd sale raised US$542K. Later, Factom raised capital via more traditional channels, including a "crowd" investment round via BnkToTheFuture (1.1M, July 2015), an investment by Kuala Innovations (400K, October 2015) and a round led by Plug and Play (1.5M, December 2015).

At the time of writing, 8,753,219 Factoids were in circulation, putting Factom's FCT-based market valuation at roughly US$27M.

Factom usage statistics

A discussion of the economic model behind Factom

Another discussion of the economic model behind Factom

Developers and Community

Factom's team has grown to 26 people. The company is mostly based in Austin, Texas, but maintains small offices in Shanghai, Beijing, Honduras, London, and Sunnyvale, CA to be closer to their current and potential clients.

Like a number of other blockchain projects, Factom is divided into a non-profit part, the Factom Foundation, and the for-profit Factom Inc. The Factom Foundation builds the Factom Protocol and Network (the network software is open source) and Factom Inc. offers services on top of the Factom Protocol and Network. We didn't find out too much about the real-world separation of the two units at the time of writing.

Community support for Factom seems somewhat weak. From the outside, the company and its products, including the open source network, looks mostly self-contained. This is a stark difference to projects like MaidSafe, that build on strong community support.

A certain amount of hostility towards Factom can be felt in small parts of the crypto community. The 2015 fundraising process was somewhat convoluted, giving some early FCT buyers the feeling that they were cheated out of their fair share of the company, whatever that might have meant for them. Buying tokens doesn't entitle you to company shares after all. Bitcoin isn't known to be a project that is particularly supportive of unconventional uses of its Blockchain. Especially Peter Todd was once quite vocal about Factom not being a good idea (or at least not as good as his ideas).

Overall, the atmosphere around Factom feels friendly, business-minded, full of purpose and sometimes refreshingly funny. Factom seems to have the potential to dress the Blockchain in just the right suit to make it compatible with business and with the authorities.

End-User Experience

Factom is still working towards the seriously delayed Milestone 2 of its 3-milestone release plan. While the core network is up and running, Factom only offers a "developer-grade" end user experience right now, with a relatively meager set of how-to guides for developers. Unless you count the GUI wallet with its, erm, brutalist design as an end-user tool.

Conclusion

Factom's tight focus on dispensing truth via the Blockchain makes the platform attractive for businesses and public authorities that have to deal with counter party trust issues every day. Will these actors buy into a ledger that creates an immutable (but not necessarily public) history of all of their dealings? Or will they continue to see the relative obscurity of their current systems as a basis of their power?

Accenture's plans to make the blockchain editable have been ridiculed by the worldwide crypto community. But the fact that a big business consultancy felt the need to make these statements demonstrates how far businesses and authorities are away from buying into a system that doesn't allow them to tamper with their own and with other people's past.

The Blockchain, if taken seriously, is a truly disruptive technology, because it has the potential to become a source of honesty and trust in the dealings between social actors. Time will tell who is ready to accept this change.

Name	Explanation
Project URL	https://www.factom.com/
Network status URL	Some stats on the homepage, Block Explorer (down at the time of writing)
Company	Factom Inc.
Direct/indirect competitors	Other blockchain as a service projects, like Eris Industries, Microsoft Azure BaS, IBM Blockchain
Market cap	27'823'420 US$
Announced (bitcointalk.org)	November 7th, 2014
Network launch	July 2015 (RC1)
Next milestone	Milestone 2, TBA
Blockchain type	Bitcoin-anchored custom blockchain construct
Stored on the blockchain	Data anchors/hashes
Other distributed technologies	Kademlia DHT
Coins available	8'753'219 FCT
Coins total	infinite (theoretically)
Listed at	Poloniex, BitMEX, Bittrex, Yuanbao, Cryptopia