Investigating the Top Cryptocurrencies, #7: Factom

Factom is an open source project making it easy to store documents that are “preserved, validated and published” via the Bitcoin blockchain.

Factom is a simple idea with tremendous applications. It adds new functionality to the blockchain world while still using the trusted bitcoin protocol for final verification purposes.

Anything from land ownership to personal identification can be stored immutably on the blockchain. This is a great idea, but how is the execution? This post looks closer at Factom to see if it can live up to the hype.

About This Series + Disclaimer

This post is part of a new series where I investigate each of the top 50 coins by marketcap (based on coinmarketcap.com’s rankings on October 11, 2017). My goal is to help steem’s userbase become the most knowledgable blockchain community in the world.

Disclaimer: I am not an investment expert and will not be providing investment advice. I will teach you about the top 50 coins, and you can do what you want with that info.

How Factom Works

Take a look at Factom’s white paper.

How I feel trying to read this whitepaper

It is a difficult read, very technical and specific. It takes a lot of brainpower to parse what Factom *does*, exactly. On one hand it is supremely simple. On the other, it is difficult to grasp.

At its core, Factom is a protocol for registering information onto an immutable blockchain. It lets any group of people store data on a shared ledger, where nobody can change the rules later.

Factom specifically verifies the following information: Who put this information onto the blockchain, when did they do it, and what is the information?

It doesn’t verify factual statements. For example, I can encode the sentence “Pigs Can Fly” into the ledger. The Factom entry serves as proof *that I said it*, not that the statement itself is true.

For systems of public information that needs to be kept safe — ID numbers, land ownership documents, birth certificates, and many other documents — Factom could be the perfect solution.

As Factom Founder Paul Snow puts it: “The books can be distributed. And with Factom, not only can the books be distributed, but cryptographic proofs can be used to validate and verify particular parts of those records while holding back critical information that might preserve privacy or business processes that are outside the purview of the examiner.” — (source)

<h3>Current Real-World Use Cases for Factom</h3>

Factom is offering its “Harmony” service to banks who want to secure final loan and mortgage documents on blockchains.

This isn’t just to maintain the current relationship between lender and borrower. It also makes it easier for loans to be sold to third-party companies.

For example, imagine a bank is selling ten million dollars of debt to a debt collector. As it stands today, it’s a huge hassle to audit the records for either company. In the future, if all loans were registered on the factom blockchain, verification and transfer of that information would be substantially easier.

In another real-world use case, Factom has partnered up with the Bill & Melinda Gates Foundation to develop methods for tracking medical information in third world countries.

Citizens of these countries need their records to travel across many disparate facilities, sometimes with no internet access. Factom offers a chance to codify all that information in one place with no risk of losing or accidentally modifying the medical records later on.

Who is Responsible for Factom?

Paul Snow is the founder and central architect of the Factom project. He committed the first code to GitHub on June 11th, 2014.

Paul Snow

Since then Paul has built the Factom staff up to 30 people. It’s a big team with a lot of collective experience. I always like to see a big team working on a simple idea. Sometimes that is exactly the formula that leads to revolutionary progress.

He’s also active on the Factom subreddit, which is cool.

It appears that Paul ran a small company for 10 years prior to starting Factom in 2014. He has been the President of the Texas Bitcoin Conference ever since December 2013.

Market History

Factom’s chart is similar to most of the tokens we have looked at so far.

A low, steady price for the first 1.5 years… then, boom! The crazy bull market of July 2017 sweeps it up in a wave of altcoin moons. Intense volatility follows, with the price fluctuating between $16 and $32.

There is some basis for the increasing valuation based on Factom’s increasingly impressive business partnerships as laid out in the Current Real-World Use Cases section of this article.

It’s hard to say where the price is heading in the near future. I feel like you would either HODL based on long-term value, or stay away from the token until it finds a steadier value.

Economic & Technical Specifications for Factom

Factom’s consensus model is a modified Proof of Stake system — perhaps “Proof of Burn” would be the best way to refer to it. Here’s a summary from the white paper:

“The policy and reward mechanism in Factom is similar to Proof of Stake (PoS). Factom differs from most PoS systems in that only a subset of users’ stake is recognized. Only value which has been committed to the system has a voting share. The transferable Factoid value does not have a voting share. Only value which has been turned into Entry Credits, which is not transferable, has a say in choosing the Federated servers”

You have to burn tokens (converting them into non-tradable “Entry Credits”) to claim your share of power to influence the consensus.

Is this a good consensus model? Let me know in the comments or via Twitter, I would love to hear your thoughts. I personally have no idea.

BTW you can find some more info via the bitcoin talk forums.

Token Distribution Model

The initial token distribution happened via an ICO in late March / early April 2015. Information is scarce on the economic model of Factom, but I did find some information courtesy of user “shumbalar” on the Factom subreddit: “Currently 8,700,000 then from M3 876,000 will be added annually. Right now they are being slowly burned with no replacement.”

User DrunkenAardvark offers additional information a bit lower in the thread… he says it perfectly, so I won’t try to summarize. This is worth reading if you want to understand the Factoid ecosystem of the future:

In summary, the Factom network will naturally adjust the price of entry credits based on supply/demand. If all goes well, the token supply will hover around 9 million tokens indefinitely.

Final Thoughts

Factom looks like a good token. I’m a big fan of any broad, carefully designed protocol with a strong team behind it.

The biggest concern for me is how centralized the whole project is. Factom seems to be driving all of the progress right now. In 50 years, will they still be in charge? Or is there some plan to eventually decentralize the management of the blockchain?

This is a big, boring, potentially important protocol. Don’t look for Factom to become a household brand — but look for it to accrue tremendous value if more Fortune 500 companies start using it.

If the Factom team can build more relationships at that level over the next 3 years, they could make big progress and add value to the market cap of the token.

What do you think about Factom?

Do you have any experience with this token? What do you think?