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Factom: arise, tortoise

By Daniel M. Ryan
web posted August 15, 2016

Important Disclosure: If you find Factom intriguing based on what's below, please keep in mind that I have a large pecuniary interest in it taking off. As I write, I own a little more than 4,500 units of Factom's cryptocurrency. Moreover, I spent US$1,000 on a minnow-sized allocation of Factom Inc.'s nonvoting series B preferred shares. Although I bought those in part for civil-disobedience reasons, I also hope to make a profit on them. Please remember that I'm in the tank money-wise for Factom.

The hot cryptocurrencies are like bewitching hares. They leap, they bolt, they entrance you into dreams of making a fortune with bleeding-edge fintech. They beguile you into believing that you can become rich and change the world as we know it.

In this environment, a company like Factom is startlingly ordinary. Its reason for being, and the purpose of its cryptocurrency, is to use the Bitcoin blockchain to ground a censorship- and fraud-resistant notarizing service. Instead of tub-thumping rhetoric about bringing down fiat currency and the fractional-reserve banking system, its team churns out announcements about technical milestones, ways to use the system, and announcements of corporate partnerships in their official blog. They have a sub-index page full of links to how-to guides. Their official wallet is not easy to use. Unique to the altcoin space, the devs are ambivalent about Factoms's cryptocurrency (named Factoids) being used for money at all. In the Factom system, Factoids are supposed to be used to get "entry credits" that allow their owner to insert the hash of one piece of information into the Factom blockchain. As this independent how-to-guide explains, you'll end up with an entry chain with a title that's readable by Factom's block explorer but whose individual entries are unreadable hashes.

Unlike the typical cryptocurrency, Factom factoids are backed by a product: you can exchange them for entry credits. The exchange rate is mediated by a real-time price feed so as to make each entry credit have an implied value of one-tenth of a cent. If one Factoid has an implied price of two dollars, sending one of them to an entry-credit address will get you two thousand Entry Credits. If a Factoid drops to a dollar, sending one will get you a thousand Entry Credits. Setting up a new chain costs ten Credits plus the cost of the first entry itself, which is fixed at one Credit per kilobyte of data added. Once a quantity of Factoids is exchanged for entry credits, that quantity is destroyed or "burned."

Each transaction takes up to ten minutes to gain one confirmation on the Factom network. Since it's a side project of Bitcoin, its block time is the same as Bitcoin's adverted time: ten minutes per block. But unlike Bitcoin, its blocks are churned out on schedule. That's because the Factom network is what's called a federated network. Instead of anyone being able to validate the blockchain and add blocks with a mining node or proof-of-stake full node, the number of block generators is fixed at 32. Right now, since Factom's still in its testing phase, all of them are run by Factom Inc. Later in the development process, once a milestone called "M3" is achieved, outside parties will have a chance to run validating nodes of their own. At the same time, new Factoids will be generated as block rewards. (Until then, each Factoid destroyed shrinks the total supply by the amount burned.)

From then on, the 32 Federated Servers which earn the block rewards for building and securing the network will be the winners of a continual voting process. The next thirty-two serve as Audit Servers who make sure the Federated Servers are doing their jobs correctly. The Factom team went for a federated system because the responsibilities of the servers are a lot larger than the ones a miner has to assume. In addition to validating all the transactions and entry chain, each server has to accurately compress the entire block's data into one single hash and be ready to deposit it into a Bitcoin block. If that's not done exactly right, the system cannot guarantee that the hashed data has not been messed with. The system would fail to do its job. As you've probably guessed, a lot of thought and a lot of testing have been focused on the low-level nitty-gritty. Factom is a low-key cryptocurrency, and the devs show that same low-keyedness. I've read more than one complaint on its announcement thread about the devs' lack of hand-holding and keep-the-faith posts. If you ask a technical question, either Paul Snow or Brian Deery is quick to answer (if someone doesn't beat one of them to it.) But forecasts and keep-up-the-spirits enthusiasm posts are sparse. This lack of patter has frustrated some Factoid owners, most particularly impatient ones, but has reassured others. If you're in the latter group, you see the lack of Bitcointalk activity as a sign that the team is too busy working to hand-hold. Despite that low-key approach, or perhaps because of it, Factom's announcement post has a long list of items under the heading "Factom In The News." The list ends as of March 26th 2015; a list that's up-to-date would be longer.

On the other hand, the team has been quite active on the Factom Website. The blog's latest entry announces a partnership with the mainland Chinese firm DataYes to enter the prices of 3,000 Chinese stocks into the Factom blockchain. The post just prior announces a partnership with SmartContract.com that will see Factom powering "Smart Oracles" for trustworthy price feeds for smart contracts on platforms like Ethereum. The next blog entry will undoubtedly announce a successful fundraising done in co-operation with BnkToTheFuture, in which Factom Inc. raised more than US$1 million. It's the same funding round mentioned in the disclaimer, the one I snuck myself into as a minnow.

Mindful of my pecuniary bias, your humble author will exit the stage with this point of thought: Blockchain technology is like the steam engine. Just as the mighty steam machine fired up imaginations in the eighteenth century, blockchain finance is firing up imaginations now. But like the steam engine, the first mainstream use cases will be as helpers to established industries – just like the first big-business use cases for the steam engine were pumping water out of mines and running automated textile-weaving machines. It's not just radical and disruptive use cases that change the world. Before the Iron Horse, the most transformative uses for steam power were ordinary, workaday and even somewhat boring.

You can't judge a tech by its patter. ESR

Daniel M. Ryan, as Nxtblg, is shepherding the independently-run Open Audi Initiative Prediction Market Shadowing Project. He has stubbornly assumed all the responsibility and blame for the workings and outcome of the project.

 

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