Factom Cryptocurrency Review

Oct 17, 2018   |   by Aidan Coia   |   Tokens & Coins
Bitcoin Beyond Currency

Any Bitcoin enthusiast has likely been confronted with the line, “I support blockchain technology, just not Bitcoin.” Although the terms are definitively intertwined, the team behind Factom aims to implement a connection between the revolutionary technology and security of Bitcoin’s blockchain with the real-world chaos outside of monetary transfers.

Not concerned with constructing an additional cryptocurrency with little to no purpose, Factom focuses on creating a liberated environment for application development on the Bitcoin blockchain. This information exchange between the Factom layer and the Bitcoin blockchain allows for simple, efficient, and secure utility of any record or data type - not only those that are monetary-based. The project arose to combat three crucial constraints that impede development on the Bitcoin blockchain. The first constraint involves speed. Decentralized consensus through proof-of-work requires a transaction latency of around 10 minutes for confirmation, which is an absurd wait time in this sphere. The second constraint, cost, prevents applications with large numbers of transactions to operate profitably. Finally, throughput provides a serious obstacle. Bitcoin’s 1 MB blocks have at times crippled the number of transactions that can be included in the network. Currently the throughput is capped at 7 transactions per second. Through the Factom ecosystem, applications will be freed of these constraints and be able to operate faster, cheaper, and without a throughput bottleneck.

The Team

With more than three decades of experience in software development, CEO, Paul Snow, leads the Factom team while also acting as Chief Architect for DTRules, an open source project he started in 2004. Similarly, Chief Scientist, Brian Deery, displays ingenuity and thoroughly innovative visions, developing such technologies as underwater energy harvesting devices and competitive self-driving cars. A third component of the team who, somehow, continues to uphold such a high level of innovation, is Chairman of the Board, David Johnston. Johnston began the first open-source blockchain and token-based venture capital fund, the Dapps Venture Fund. He also served as Executive Director of one of the world’s largest investment groups, Bitangels, highlighting his knack for pioneering novel projects related to blockchain technology.

The Tech

The beauty of Factom does not come from what the project adds to the blockchain, but rather from what it removes. As previously noted, Factom aims to alleviate blockchain bottlenecks that arise from high transaction volume and low block size. In order to accomplish this goal, while handling complex files such as images and videos, the protocol encodes the data into an entry block. The entry blocks, collections of cryptographic signatures linked to the data being stored by hashing algorithms, or simple data itself, are in turn organized into directory blocks. This directory layer is the component that actually interacts with the Bitcoin blockchain, by adding Merkle roots in a way that “anchors” all of the entries on the block to the immutable blockchain. Additionally, only these directory blocks, at the highest level of the data structure, are required to fully validate a chain, unlike bitcoin, in which the entire blockchain is necessary for validation.

By maintaining a separation between the data and what is encoded into the blockchain, the Factom network will be able to accommodate far more than the simple monetary transactions which many projects handle exclusively. Some examples of implementations, along with simple data, could be land ownership agreements, financial records, personal identification, etc. Implementations such as these are grouped into chains by their characteristics, allowing applications the ability to hone in on certain data groupings as opposed to sifting through the entire database. More complex cases, involving one or more smart contracts, can provide templates of sorts that allow future applications to operate off of an already present foundation.

One unique feature of the Factom protocol is the use of client-side validation of entries. Users, or applications, construct chains with any set of specific rules and guidelines for communicating those rules to other users. When an entry is made to a chain, Factom does not conduct validation. The user validates, choosing between trusting an auditor, or trust-less auditing. Because the underlying Factom protocol does not have to validate each entry, as Bitcoin would to avoid dangers such as double spends, invalid entries cause little to no disruption to the system. Factom servers, constantly switching responsibility to avoid centralization, have little knowledge of specific entries, allowing for less interaction and faster recording speed. Instead, each chain, to which an entry is made, validates entries based on its own guidelines, and does not require knowledge of the structure or rules of any other chain in the Factom directory.

The Factoid

Although the project may show resemblance to other second-layer protocols, the utility of the Factoid token undoubtedly differentiates Factom from the rest. Instead of directly interacting with the Factom ecosystem, the Factoid token is used to purchase Entry Credits. These Entry Credits are not a currency, as they are not transferable, but can be purchased as a product with Factoids. With this reduced incentive to steal Entry Credits, because they are not transferable, the credits can be stored with less risk and with lower-security methods. Here is where cryptocurrency evangelists rejoice. One purpose of the entry credit system is to eliminate dependence on the token itself. Any Factoid price fluctuations will not affect the entry credit system, as users are paying for use as opposed to paying for a currency. This means users can interact with all facets of Factom without ever holding a cryptocurrency asset. If this doesn’t get your “widespread-adoption senses” tingling, I am not sure what will.

The Current State

Currently, the Factom subreddit, r/factom, has over 8,000 subscribers and sees a decent amount of regular activity. The Factom twitter account, with over 77,000 followers, remains very active and on top of any developments from the team. Apart from social media, Factom’s github has seen 172 commits in the past 90 days, nearly as many as Ethereum’s 215 and over three times as many as Ripple’s 54. The overall Factom community seems to be vibrant and active, and with over 6.5 million entries as of early September, 2018, the project is off and running.

Aidan Coia