What is Factom? | Beginner’s Guide
What is Factom?
Factom is a blockchain protocol that separates the immutability of blockchain technology from the currencies that are usually associated with it. This makes it easier and cheaper for businesses to store data on the blockchain.
Factom attempts to solve three main problems seen in the Bitcoin network:
- Speed – Bitcoin transactions take at least 10 minutes for a single confirmation. With a community standard of 6 confirmations before a transaction is fully processed, many of them take over an hour.
- Cost – Bitcoin transaction fees have been increasing and may continue to do so as more transactions enter the network.
- Bloat – With 1MB block sizes, the number of possible transactions per second is capped. Even the implementation of Segregated Witness (SegWit) and the Lightning Network may not be enough of an improvement to curb Bitcoin’s scaling issues.
Also, the documents and data stored using Factom can easily be audited which further lowers the cost needed to have a secure and accurate data store.
Factom is particularly useful for businesses in which important data regularly change hands. Documents such as land grants and medical records need to have ensured accuracy as they pass from one person to the next.
Storing data on the blockchain provides an immense amount of value to these businesses. Maintaining paper records is expensive and traditional digital storage is vulnerable to malicious tampering. Factom solves both of these issues.
In this Factom guide, we’ll go over:
- How does Factom work?
- Factom Team & Progress
- Factom Trading
- Where to buy FCT
- Where to store FCT
- Additional Factom resources
How does Factom work?
Factom uses two tokens on the network:
- Entry Credits
Factoids have their own chain in Factom and can be traded freely like most other cryptocurrencies. These coins decentralize the system and prevent users from spamming the network.
Factom servers receive Factoids as a reward for maintaining the network. The network releases these rewards at a fixed rate (73,000 per month) in a process that’s independent of their price.
Entry Credits (ECs)
You can use Factoids to purchase Entry Credits through the protocol. Entry Credits are non-transferable and you can only use them to pay for Entries or to vote for Federated servers.
Because they have little intrinsic value, you can store Entry Credits in a low-security area with little risk that thieves will steal them.
You need to spend Entry Credits to add data to the Factom blockchain. When you spend an Entry Credit, the Factoids that you used to buy it are removed from the system (AKA burned).
Separating Factoids from Entry Credits opens up Factom to users who either don’t understand or don’t want to use cryptocurrency. They can simply buy Entry Credits using the currency of their choice. Factom then buys Factoids from the open market and burns them to cover the purchase.
The Factom Chain
Each Entry that you submit has a Chain ID. The Chain ID determines which sub-group should include the Entry. Entries have a maximum size of 10KB, but you can use multiple Entries to link together larger files.
A sequence of Entries forms a Chain. The Chain records the order of the Entries which leaves an audit trail. To put it simply, Chains are like folders, and Entries are like the files that you place into folders.
An Entry Block is a group of hashes of all the Entries with a particular Chain ID. It’s important to note that the Entry Block contains just the hashes, not the actual data of the Entries.
Every minute, the Federated Servers create a Directory Block by grouping together the hashes of the Entry Blocks from that timeframe.
Once 10 Directory Blocks are formed (every 10 minutes), the hashes from those Directory blocks are anchored to the Bitcoin blockchain. The Federated Server that performs this action is chosen at random.
The network’s design makes auditing records an easy and low-cost process.
In Bitcoin, you need the entire history of the blockchain to validate a transaction. This isn’t necessary with Factom. Using Directory Blocks and Chain IDs, you can greatly reduce the amount of bandwidth needed to audit the records.
3 Types of Servers
Federated Servers are the primary servers running the Factom network. They are the only ones that can write data to the blockchain and receive Factoid rewards.
These servers send a “heartbeat message” to the followers on the network to prove their existence. If a Federated Server doesn’t produce a heartbeat message, the followers immediately start a new election to choose a new Federated Server to take its place.
Audit Servers double-check the work of the Federated Servers. If a Federated Server makes a mistake, it becomes an Audit Server, and one of the Audit Servers upgrades to a Federated Server.
These servers don’t receive rewards for the work that they do.
Follower Servers can only make transaction requests. When they receive an entry request, they forward it on to a Federated Server.
The network doesn’t perform audits on initial Entries, so you should audit all of your Entries before entering them into the system.
Factom Team & Progress
The Factom project began in 2014 which puts it on the older end of the blockchain spectrum. The team has made steady progress since then.
They released the first version of Factom in early 2015 and had their token sale in the middle of that year. In August of 2015, they were accepted into the Plug and Play FinTech accelerator and were chosen as one of Austin’s A-List start-ups in May 2016.
Based out of Austin, TX, the core team has multiple members with several years of experience in the blockchain space.
Factom currently has over 11 million entries as well as some notable partnerships. The team is working with the Department of Homeland Security to provide audit trails for data collected at the U.S. borders. They’re also partners with the Gates Foundation to store medical records for people in developing countries.
The company has few direct competitors. Its biggest competitor is NEM which released a whitepaper for Apostille earlier this year. Like Factom, Apostille specializes in the notarization and timestamping of data and documents.
The Factoid price reached an all-time high of ~$33.72 (~0.0135 BTC) this year in June. Since then, the price has steadily dropped with two short-lived spikes and currently trades between $20 and $24.
This may change as the network gains popularity, though. The price of a Factoid is directly tied to the amount of network usage. As more businesses join the network, it will become more costly to submit Entries which will, in turn, affect the Factoid price.
Once the number of Factoids being burned outpaces the 73,000 that are created each month, the currency will become deflationary. This may drive the price up even further.
Where to buy FCT
CoinMarketCap lists all of the exchanges and trading pairs that are available for Factom.
Where to store FCT
You have two recommended wallet options to store your Factoids:
- Secure (Encrypted) Enterprise Wallet
The Enterprise Wallet is available on Mac, Windows, and Linux. You can find instructions to download and use the wallet here.
The FactoidPapermill is an app that’s also available for Mac, Windows, and Linux. With the app, you can create a Factoid private key and the associated Factoid address. Once created, you can either take a screenshot or write down those two string of characters effectively giving you a paper wallet.
The FactoidPapermill is currently in beta, so use caution when working with it.
It seems as if the wallets haven’t been a primary focus of the Factom team. Although they’re still fairly easy to figure out, they lack the intuitive user interface seen with other cryptocurrency-specific wallets like ARK.
They aren’t many other wallets that support Factoids yet but they seem to be gaining traction. Exodus’s new wallet, Eden, supports Factoids, but it’s still in pre-release, so you may have issues when using it.
Factom is a well-established project that’s solving a huge problem that spans across multiple industries. Although marketing hasn’t been the team’s focus, they’ve been working in the shadows to form business partnerships and continue improving their products.
The team not only has experience working on previous projects together but also share several years of blockchain knowledge.
As the company grows, it’ll be interesting to see how the price of a Factoid responds and what will happen if or when it hits a deflationary point.
Additional Factom resources
Venezuela recently became one of the first countries to implement a national cryptocurrency, but the Petro is...
Blockchain Singapore, the tiny island nation is embracing cryptocurrency technology and attracting top talent with their progressive...
Finding it difficult to navigate the cryptocurrency investment landscape? Here’s how Sentinel Protocol can protect you against...
The computer has come a long way from being a gigantic hunk of a metal and plastic surrounded by groups of curious men and women with clipboards. Fast-forward a few…
ABOUT THE AUTHOR
ABOUT THE AUTHOR
Based in Austin, TX, Steven is the Executive Editor at CoinCentral. He’s interviewed industry heavyweights such as Wanchain President Dustin Byington, TechCrunch Editor-in-Chief Josh Constine, IOST CEO Jimmy Zhong, Celsius Network CEO Alex Mashinsky, and ICON co-founder Min Kim among others. Outside of his role at CoinCentral, Steven is a co-founder and CEO of Coin Clear, a mobile app that automates cryptocurrency investments. You can follow him on Twitter @TheRealBucci to read his “clever insights on the crypto industry.” His words, not ours.