What makes Factom such a promising project, as I see it, is not the superiority of its technology over alternatives per se.  Rather, Factom works because its network, protocol, governance model, and development plans were designed to gradually build and sustain a community to support the project, one that would be organized and incentivized around their shared interest in making the project a success.  That community now exists, composed of several dozen companies, core developers, network operators, application-builders, project promoters, and protocol users, each working towards the wider project's success in their own way.  

Many open source software development projects struggle to find enough funding or free labour to ensure they make steady progress, and often end up being abandoned.  Perhaps that's unsurprising, for when it comes to writing and maintaining software, no one wants to do all the work if the end product will benefit everyone else just as much as it will benefit themselves.  

In economics this is called "the tragedy of the commons," and it's been a persistent problem for open source technology projects like Factom.  The problem is that everyone would prefer someone else do all the work on a group project, so no one ends up doing any of it, lest they feel like the sucker of the group.  What makes the Factom community so unique, and the project itself work so well, is the way it's managed to align the interests of individual community members with the interests of the entire group, primarily by remunerating people with communal funds for working on the project.  The result is a kind of solution to the tragedy of the commons, where the person doing all the work on a group project actually benefits more from its completion than everyone else.

In this post I explain exactly how Factom does that.

(Anyone looking for a more technical, less social account of how Factom works will likely find most of their questions answered in the Factom whitepaper, or else in the extensive library of technical documentation produced and maintained by the Factom community and hosted on the official Factom Protocol website.)


It's easy to suppose that, generally speaking, the superiority of new technologies (e.g. the musket, steam engine, electric lighting, etc.) sufficiently explains both their development and eventual widespread adoption.  If that were true, technological progress could be made simply by devising and producing objectively better or novelly useful things, which would inevitably be adopted so long as their benefits were recognized.  

Any modern technologist looking to history for guidance will find, however, that great new technologies are almost always designed, built, and adopted only after wider social changes have lead intellectual and specialist communities to organize themselves in new, more productive ways.  Merely conceiving of some technically superior or otherwise beneficial technology is never enough to ensure it gets properly developed and produced, nor are a newly available technology's potential benefits sufficient to ensure its widespread adoption (just ask Toshiba, Sony, or Sony again). Technological progress, simply put, usually requires the formation of some new type of community dedicated to the development, production, promotion, and use of a new technology.

False.

The Factom project, more than any other blockchain project I'm aware of, has from its inception aimed to create a community that is willing and able to help make it a success.  Several powerful, unique incentive structures have been baked right into the design of Factom's core protocol, network organization, and protocol governance, tailored specifically towards motivating and facilitating the various kinds of work the project needs to succeed.  There now exists a large, diverse community of people mutually interested in the project's genuine success, not merely in increasing the price of the Factom network's native cryptocurrency (Factoids, or FCT).  The entire Factom ecosystem was designed to continually draw skilled people into that community, get them interested in the project, and remunerate any of their efforts to "further the protocol," e.g. protocol development work, the building of Factom-based applications, the execution of protocol-level marketing campaigns, etc.  

Sure, the technology is great.  It's actually really awesome.  I genuinely hope that products and services built (and being built) on Factom become industry standards for preventing all types of fraud, be it the prevention of corporate book-cooking, personal identity theft, or more subtle and less malicious forms of impropriety amongst scientific and clinical researchers.  But as impressive as Factom's technology is, that alone is not enough to ensure its continued improvement, deployment, and regular usage.  The Factom project works because the plan was never just to build the Factom protocol, but to also build a community whose members were organized and incentivized around the collective aim of "furthering the protocol," in whatever ways they each deem necessary.  The social structures that organize and incentivize that community, more so than the features and functions of the Factom protocol per se, are what have made the Factom project work so well to date, and make its continued progress so likely.


Plausible (albeit dated) estimates have suggested that the failure rate of ICO-funded blockchain projects has been as high as 92%, resulting in an average lifespan of just over a year.  In that context, it’s reasonable to say (and important to recognize) that Factom has already stood the test of time, given that its first block was mined nearly four years ago, in September 2015.

The Factom Protocol is the brainchild of a single company—Factom Inc.—formed waaaaaay back in 2014, which designed and built the core Factom protocol, wrote the original whitepaper, and eventually held a small ICO (well before the madness of ICO-based fundraising seen in 2017).  Factom Inc. spent the ICO proceeds and some additional private (series A) funding on developing the basic Factom blockchain software and deploying it on their own servers, while also creating a few separate, B2B solutions that operated either on the public Factom blockchain or on private implementations of the same technology.  In those early days, Factom Inc. was the only entity permitted to operate the "Authority Nodes" (i.e. the block producers) that make up the Factom network, meaning its main-net was launched and operated for some time as a completely centralized network.

That centralized network was sufficiently functional to be used by the applications and B2B services Factom Inc. had built upon it, meaning they could begin offering them to clients and other potential users.  But anyone familiar with blockchain technology will recognize how network centralization completely obviates the main benefits of distributed, blockchain-based record-keeping over more traditional, centrally maintained record-keeping methods (e.g. databases).  Most of the security advantages of blockchain technologies come when they're operated by decentralized networks, meaning that no single entity or consortium of entities controls a majority of the network's nodes.  That way the authority to decide how the official record gets updated or amended is distributed amongst many unaffiliated groups, each with an interest in not allowing fraudulent entries or revisions to be made.  This ensures the integrity of some set of records without anyone needing to trust a single authority to accurately update, maintain, and never alter them.  

The immutability of blockchain records is thus primarily achieved through network decentralization.  And given that Factom is meant to serve (primarily) as a data integrity solution, network decentralization is especially important.  So while Factom Inc. controlled every node in the Factom network in the beginning, their plan was always to gradually decentralize it by awarding several other companies (including a few potential competitors) the right to operate their own authority node(s).  

Doing this also meant handing those companies the rights to the remuneration regularly awarded to Factom node operators by the protocol (detailed below).  This effectively provided those companies with a reliable (if variable) revenue stream, but more importantly it also gave them an interest in and a vote over how the protocol would be further developed.

This business development strategy may seem rather absurd at first: build tools your potential competition could use to operate their business, make sure those tools can easily provide a steady yet largely passive revenue stream, then willingly provide them to others.  But this was actually part of a very clever plan, for the Factom protocol was designed such that the gradual decentralization of its network would yield much more than increased security for its blockchain.  The process of approving and integrating new nodes into the Factom network was designed to also create, organize, and incentivize a community of Authority Node Operators ("ANOs"), core protocol developers, and businesses building, marketing, and selling a variety of Factom-based products and services.  

The idea was that as the Factom network became more decentralized, ever more people would begin helping with the project, having been given an interest in its success.  That's why Factom Inc.'s plan was always to eventually distribute amongst many other companies most of the responsibility for operating the Factom network, most of the control over Factom protocol development, and most of the remuneration node operators receive for maintaining the network.  Decentralization meant they'd have a more secure blockchain, sure, but more importantly it meant they'd have loads of help executing (even improving upon) the Factom project's basic vision.


Like every Bitcoin node, the key role of every Factom node is to continuously receive transaction requests sent to the network, decide as a group how to order those requests into blocks, then periodically append new blocks to their locally-held copy of the Factom blockchain.  A hash of every new directory block also gets "anchored" into the Bitcoin and Ethereum blockchains, providing assurance that the Factom blockchain could never be altered undetectably, even if some majority of node operators one day conspired to try.  Only the holder of the Anchor Master grant (presently Factom Inc.) anchors Factom's directory blocks' merkle roots into other blockchains in this way, at least for now, though there has been discussion of having multiple ANOs do this in the future.  This would provide redundant assurance of the Factom record's immutability, and further disperse power across the Factom network.

Unlike Bitcoin node operators, however, Factom ANOs are not forced to compete with each other in the hopes of earning the massive reward given solely to whichever node first "solves" any given block.  Instead, in appreciation of their tireless efforts to operate and maintain the network, Factom ANOs evenly split a pool of 73,000 freshly minted Factoids every month, in proportion to the number of nodes they're operating.  ANOs can sell, hoard, or use their monthly share of Factoids however they choose, but what makes this whole system especially interesting is that ANOs are also generally charged with "furthering the protocol" in some way, in addition to their node operation duties.  

Different ANOs pledge to do this in different ways: some work on core protocol development, others on providing statistical information regarding protocol usage,  creating javascript libraries for building Factom-based applications, building new Factom-based applications, improving and garnering usage for existing ones, etc.   Depending on how valuable they believe their protocol furthering efforts to be, ANOs pledge to operate at specific "efficiency" levels, indicating what percentage they will keep from their share of the 73,000 new FCT minted each month.  The remaining FCT get contributed to a communal grant pool, which is then used to fund ANO and non-ANO parties helping to "further the protocol" in more ad hoc, temporary ways (e.g. running the Factom booth at a blockchain conference, updating some documentation, liaising with exchanges, designing promotional materials, etc.).  Grant proposals are periodically called for, submitted, then voted on by the entire community, ensuring that community members are constantly thinking about what needs to get done and who can do it, knowing that anyone can be paid for doing valuable work.  

Simply put, new FCT are created at a steady rate by the Factom protocol, but instead of going to a single "winning" node operator as happens with the Bitcoin network, new FCT always gets distributed throughout the Factom community.  This is done in a way that rewards nodes operators while also funding other types of valuable work being done by various community members, which (unsurprisingly) helps ensure that work actually gets done.

But wait ... currency inflation is really bad, right? Well, no, not always.

Many cryptocurrency speculators and blockchain aficionados have been put off by this inflationary aspect of the Factom protocol, as inflation generally leads to a currency's devaluation over time.  Some of these critics fail to realize that Factoids must be "burned" (i.e. destroyed) by users in order to use the Factom protocol (i.e. enter data into its blockchain).  Others worry there'll never be enough protocol usage for more FCT to be burned than minted in any given month.  But what's important to realize is that ongoing FCT inflation is by no means guaranteed, even with 73,000 new FCT being minted every month.  With increased protocol usage the present inflationary trend will begin to slow down, and could even reverse into a deflationary trend.  

The FCT minting-burning cycle was designed such that a slow but steady rate of inflation (minting) would fund various people's ongoing work to "further the protocol," which would in turn lead to ever greater protocol usage (burning).  This is inflation by design, based around the fact that increased protocol usage necessarily drives up the base price of FCT (and thereby its market price).  This provides an additional reason for many community members to work on increasing protocol functionality and usage, for any increase in FCT price entails an increase in every ANO's bottom line, and in the value of every grant awarded out of the grant pool.  

The decentralization of the Factom network basically just spread all of these incentives around to anyone that felt enticed by them, ensuring that Factom Inc. would never again be the only group of people working hard to "further the protocol."


So, having first built and begun operating a functional blockchain network, the next step for Factom Inc. was to begin to decentralize it.  To ensure only competent operators were permitted to join the network, a Factom test-net was first created where people could practice operating Factom nodes and familiarize themselves with the technology.  Factom Inc. then drafted the Factom Governance Document, which stipulated how the protocol would be governed moving forward and how the initial batch of Authority Node Operators ("ANOs") would be selected.  The entire Factom community then provided input on this proposal over multiple rounds, culminating in a "town hall meeting" where everyone ratified it together.  With an ANO selection process thereby approved not only by Factom Inc., but by everyone that had taken an interest in the success of the project (particularly in the health of the network), the first batch of ANOs were approved.  These new ANOs then joined the Factom main-net, while Factom Inc. dialled back the number of nodes it was operating.  This effectively decentralized the network, though the plan always was (and still remains) to further decentralize it over time.  

The long term goal is to have a total of 65 ANOs, each running only a single node.  At present there are a total of 28 ANOs operating 57 distinct nodes, with additional ANOs being added to the network periodically (though only after completing a rigorous application process and passing a final vote).  Factom Inc. currently operates just 3 authority nodes, one of which operates at 100% efficiency (meaning they make no money from operating it).  Furthermore, decision-making power regarding the protocol's direction and technical development is now distributed across various elected guides, committees, and other ANOs (with plans to also grant voting rights to token holders and protocol users in the future).  Unlike most other blockchains, however, only community-approved node operators will ever be allowed to join the Factom network's main-net authority set.  But to ensure adequate decentralization is achieved despite maintaining a relatively small network, the awarding of ANO status will always be heavily biased towards applicants who are entirely unaffiliated with any existing ANOs.  


While the decentralization process is on-going, Factom Inc. has effectively given up control of the technology they designed and built.  But that's how Factom works.  Decentralization has not only improved the security of the Factom blockchain, it's also created, organized, and continually incentivized a broader community of people dedicated to helping achieve Factom Inc.'s original vision, serving their own interests by serving the entire community's interests.  

Community members sometimes disagree about the best way to "further the protocol."  They may even find themselves competing with each other, vying for the same clients while offering similar Factom-based products or services.  But as a whole the Factom community has been structured in a way that seems to have prevented the project from fizzling out or falling prey to the "tragedy of the commons."  Loads of core protocol development is being done, nearly four years since Factom's genesis block was mined.  The continued health of this open source project is manifested by its incredibly active community of otherwise unaffiliated people, all united around Factom Inc.'s original vision of creating the best data integrity services the world has ever seen (though the community has expanded that original vision to include much, much more).  

So, as I see, it’s the unique structure of the Factom community that makes this project work, not the superiority of its technology per se.  Indeed, part of what makes Factom such a promising technology is the way it has been designed to build and sustain that community, to incentivize long term buy-in from them, and to fund the ongoing development efforts of its community.  Those social structures seem entirely capable of ensuring Factom doesn't become another abandoned open source project.  They also seem capable of keeping the community focused on the real work they need to do, rather than caring only about the market price of their tokens (as did the communities surrounding many failed blockchain projects).

The Factom community lives and breathes day-by-day primarily on its discord server, which anyone is free to join and ask curious, critical, or confused questions.  Everyone tends to respond to concerns about the project calmly and productively, either by earnestly discussing whether something truly is a problem, devising ways it might be addressed, or simply inviting capable parties to apply for a grant and fix whatever problem is bugging them.  Disagreements are almost always transparent, collegial, and productive because the people most interested in the success of Factom have nothing to hide, most especially not all the work they have left to do.  But with a social structure uniquely tailored to incentivizing people to do that work, and rewarding whoever actually steps up to do it, Factom seems like one of the few open source projects and one of the few blockchain projects that has truly been built to last (and succeed).


This article is part of a series exploring the Factom protocol: its history, philosophy, successes, challenges, features, and potential futures.  The author holds a PhD in the history and philosophy of science and technology, but has zero background as a coder or developer, bringing a unique perspective to the Factom community.

Part One can be found here

Next: What Can Factom Do?