A Beginners Guide to Factom
The Factom protocol is not an easy concept to grasp and many people don’t understand how it works, or don’t have the time to put into learning about it. This is understandable as the processes involved are some of the more complex usages within the cryptocurrency space. So let’s start off off by looking at what Factom does, and how their native token, factoids, work.
What is a Hash?
Factom basically ensures data integrity. This sounds quite simple but how it does this is the key to understanding it as a value proposition. First we have to understand what a cryptographic hash is. According to Wikipedia, “it is a mathematical algorithm that maps data of arbitrary size to a bit string of a fixed size which is designed to also be a one-way function, that is, a function which is infeasible to invert.” What this tells us is that any type of data can be reduced down to a string of upper and lower case letters and numbers. This hash will be consistent when the same data is used, thereby allowing anyone to verify the authenticity of the original data set. And should some third party have the hash and wish to reconstruct the original document, it will be impossible. This is the basic premise that underlies Factom technology.
How Factom Works
The Factom protocol is open source and anyone can review the code at https://github.com/FactomProject/. Factom offers a service where by any company can start their own chain within the Factom blockchain protocol. Once they have their own chain they can begin creating hashes of documents. The hashes allow anyone to retrieve a document at any time, create a hash of it, then compare it against the original hash. If they match then the document is valid and original. If they don’t match then the document has been altered. This allows data integrity and audit-ability which can be very important for mortgage documents, bank records, government documents, and many many more usage cases. To learn more about the uses for Factom check out their Youtube channel. Factom is derived from the Latin word Factum, meaning “Anything stated and made certain.”
The other genius behind the Factom technology is that every 10 minutes, which is the interval that Bitcoin miners solve a block, Factom creates a hash of all the companies hashes, and inserts this into the Bitcoin blockchain. This is called anchoring and further ensures that there can be no question about the authenticity of the hashes. The Bitcoin network is the worlds biggest super computer and effectively functions in regards to Factom as a time stamping machine. There can be no rolling back of the Bitcoin network and the hash inserted into it is immutable. The hash is also anchored into the Etherium blockchain.
Factom have their own tokens which are called factoids, abbreviated as FCT, and their own blockchain. There are, at the time of writing, 8,753,219 factoids in existence. These were created in an ICO (Initial Coin Offering) and there will be no new tokens created until a technical implementation called Milestone 3 is reached. Entry Credits, which corporations use for data entry, are created by burning factoids. Entry credits are abbreviated as EC.
The ICO sale began March 31st 2015 and they sold over 1 million tokens within the first 24 hours, solely accepting bitcoin. These bitcoin are released in tranches of 33%; 33% when Milestone 1 was reached, another 33% upon Milestone 2, and the remaining 33% will be available to Factom when Milestone 3 is complete. The Factom ICO raised 2,278 bitcoin worth $1.1 million USD (at the time of the ICO) from 323 investors.
Factoids might not be suitable for corporate usage due to this volatility and the learning curve that comes with understanding how to securely acquire and store the tokens. First a company would have to learn how bitcoin works, how to store them, and then they would have to purchase some bitcoin, then trade them on an exchange to acquire factoids. Of course then they face the same issues learning about factoids. There could also be legal issues. Factom has solved this problem by allowing companies to use the protocol without having to touch cryptocurrency. The customer only uses entry credits which can be purchased online in their native local currency, at a fixed USD price. The entry credits are used up each time they wish to hash a document and insert it into their private chain.
The interesting thing about entry credits is how they come into existence. Factoids are converted into entry credits. Entry credits are not transferable or reusable. They are a one off token whose sole purpose is to allow data to be hashed and inserted into a private chain. Factoids are ‘burned’ when entry credits are created. Burning means that the factoids are destroyed, thereby limiting the number of factoids in existence, at least until Milestone 3 is reached. Entry credits are also burned upon usage. So until Milestone 3 is reached the factoid supply is deflationary, that is that usage reduces the number of factoids on the market. The theory behind this is that a large burn rate of factoids will produce a diminishing supply, and as the factoid price goes higher, the number of entry credits per factoid will increase, as the entry credit price is fixed. Should you be an investor, and once Factom usage takes off, it means that your holdings should theoretically increase in value. Once Milestone 3 is reached there will be 73,000 new factoids created each month by the Federated Servers. Whether these will hit the market is unknown and will depend upon who is running them in the future. But if usage goes the way it is anticipated, the supply of factoids could become stable, that is, that the amount burned per month could equal the amount created per month.
Milestone 1 was the go live date of the Factom network, also known as the creation of the genesis block. At this point there was one server run by Factom in their office, so it was centralised. Also at this point in time FCT could be converted into EC, and the EC used to enter data into the Factom protocol. The first factoid wallet was very basic, and would be considered the legacy wallet at this point in time.
Milestone 2 was announced late December 2016. This introduced decentralisation of the servers, with there being 9 federated servers and 9 audit servers. At the time of writing the servers are hosted by Factom, but they will be hosted by third parties once the network is completely stable, ensuring complete decentralisation. The functioning of the servers is also interesting in that if a federated server is not working correctly, an audit server will switch positions with it. The Milestone 2 network also has blazing fast speeds and can handle many more magnitudes of transactions. Also for Milestone 2 there was a new wallet released, the Enterprise wallet. Unfortunately at this point in time it does not include password protection, leaving your funds ‘hot’ if stored upon your computer when online.
The other big news, not by Factom but by a third party, was that the Exodus wallet would be supporting Factom. The Exodus wallet also integrates Shapeshift, allowing a user to switch between currencies within the wallet without having to use or risk using an exchange. Milestone 2 was a bit buggy upon release, with syncing issues, and issues with balances. This is continuously being worked upon and is becoming more stable at this point in time. Until it becomes stable the Exodus is holding off on releasing their wallet with factoids as a token.
Milestone 3 is the last milestone and will increase the number of servers to 32 federated servers and 32 audit servers. It also places the control of the federated servers into the hands of those purchasing Entry Credits. Once Milestone 3 is reached the servers will generate 73,000 new factoids per month. Until then there is no increase in supply, in fact the supply diminishes as Entry Credits are created. The usage is not that much right now, so the supply of factoids has not reduced significantly.
The Executive Team is composed of Peter Kirby, CEO, Tiana Laurence, CMO, Paul Snow, Chief Architect, David Johnston, Chairman of the Board, Brian Deery, Chief Scientist, Zachary Lynde, CFO, Andrew Yashchuk, VP of Product Development, Abhi Dobhal, VP of Business Development, Zeen Zhang, China General Manager, Mahesh Paolini-Subramanya, Executive Vice President of R&D, Laurie Pyle, Executive Vice President, and Jason Nadeau, Executive Vice President.
The Core Team is composed of Michael Beam, Core Developer, Piotr Piasecki, Core Developer, Robert Baker, Process Integration Manager, Matt Whittington, Software Developer, and Veena Gondkar, Senior QA Analyst.
In Product Development there is Justin Hanneman, Code Warrior, Jay Prince, Director of Product Engineering, and Tanner Evans, UX Designer & UI Developer.
In Marketing and Communications there is Crystal Wiese, Marketing, Nicola Minichiello, Communications, and Carrie Scott, Director of Talent.
The Advisory Team is composed of Jack Lu, Advisor in Hangzhou, Neo Wang, Advisor in Beijing, and Guillermo Peña Panting, Country Manager of Honduras.
Source: https://www.factom.com/about/team March 4th, 2017.
The Factom ICO raised 2,278 bitcoin worth $1.1 million (at the time of the ICO) from 323 investors. http://www.coindesk.com/blockchain-factom-raises-1-1-million-crowdsale/
In October 2015 Factom received $400,000 from Kuala Innovations. They purchases 400,000 Seed Series Shares at $1 each., comprising a 3.64% stake in Factom Inc. http://www.coindesk.com/blockchain-factom-400-funding-11-million-valuatoin/
On June 18th 2016 it was announced that Factom had received a grant from the Department of Homeland Security for $199,000 to ensure data integrity for border control devices, also known as the Internet of Things (IOT). https://news.bitcoin.com/dhs-awards-200k-factom/
On October 5th 2016 it was announced that Factom had raised $4.2 million in Series A funding led by billionaire Tim Draper of Overstock, along with many other investors. http://www.reuters.com/article/us-factom-blockchain-draper-idUSKCN1251RG
On November 18th 2016 it was announced that Factom had received a $498,391 grant from the Bill and Melinda Gates Foundation to secure medical records in developing countries, to provide identity management and to improve the management of health care records. http://coinjournal.net/blockchain-startup-receives-grant-gates-foundation-medical-records-project/ .
On January 31st 2017 it was announced that Factom had received a second grant for $199,000 from the Department of Homeland Security (after demonstating that IOT devices can be secured within a blockchain from their previous DHS grant). https://www.ethnews.com/factom-receives-second-dhs-grant-for-blockchain-iot-project
On February 8th, 2017 it was announced that Factom had raised $750,000 in Series A funding. Medici Ventures, a subsidiary of Overstocl, received 2.5% of Factom common stock. http://www.finsmes.com/2017/02/factom-raises-750k-in-series-a-funding.html
Product Offerings by Factom
Factom offers five products at present, Apollo, Iris, Hera, Harmony, and Acolyte.
Apollo “was designed to help mitigate the risk of centralised databases.” Source https://factom.com/index.php?p=products/apollo
Iris “provides mechanisms to create lightweight security based on identity, reputation, origin, and manufacturer.” Source https://factom.com/index.php?p=products/iris
Hera “lets you scale your data needs and lower your cost for securing your data and systems.” Source https://factom.com/index.php?p=products/hera
Harmony is designed for the mortgage industry, provides evidence of compliance for all regulations, consumer protection, due diligence, lost document solutions, compliance reviews and audits, litigation support, and foreclosure documentation. Source https://factom.com/index.php?p=products/harmony
Acolyte “allows users to build Oracles for smart contracts and convey the questions that smart contracts pose.” Source https://factom.com/index.php?p=products/acolyte
Factom Clients and Partnerships
On December 7th 2015 it was announced that Cryptid (an open source ID system) was using Factom “to place encrypted identity data on the blockchain.” Source https://bravenewcoin.com/news/cryptid-open-source-identification-system-uses-the-blockchain-to-revolutionize-id/
On December 15th 2015 it was announced that Factom is a partner with Microsoft on their MS Azure Blockchain as a Service (BAAS) platform. Source https://azure.microsoft.com/en-au/blog/azure-baas-update-2/?cdn=disable
On Feruary 5th 2016 it was announced that iSoftStone, based in China, would be using Factom blockchain technology to secure smart cities. Ye Yuping, executive VP & CTO of iSoftStone, said: "By applying Factom blockchain technology to our financial services, smart cities big data services, and construction of data exchange, we will drive more innovation in China. By leveraging the advantages of both parties, we look forward to seeing a brighter future. We are sure that the integration of Factom and smart cities will bring more development opportunities for both sides." Source https://uk.news.yahoo.com/factom-signs-smart-city-deal-212854516.html
On February 4th 2016 it was announced that Factom had secured a second deal within China, this time with Ancun Zhengxin’s electronic data notarisation services. Source https://uk.news.yahoo.com/factom-inks-another-deal-china-053310625.html
On August 11th 2016 it was announced that the big data platform, DataYes, would be utilising Factom to place stock market data into the blockchain. George Hu, the General Manager for DataYes said, “Today the exchanges send out the ‘mark to market’ price and we record them in blockchain as a two-step process. As Blockchain technology matures in the future, all transactions will be recorded on the blockchain, and the “mark to market” stock price as we know today will be evolved to ‘mark to blockchain’ naturally in one step.” Source http://thedashtimes.com/2016/08/11/datayes-and-factom-collobrate/
On November 21st 2016 it was announced that dLoc would be integrating Factom for document authentication. Source https://www.smartrac-group.com/pr/smartrac-launches-dloc.html
On December 28, 2016 the Hyperledger Project announced that Factom was one of their new members. Source https://www.hyperledger.org/announcements/2016/12/28/hyperledger-wraps-up-2016-by-welcoming-eight-new-members
Factom is not your typical cryptocurrency project, it has a well funded team with active collaborations and business deals.
Should you find any errors, anything that could do with further explanation, or anything that has been missed, please post it in the comments below. Please keep comments Factom related.