All cryptocurrencies start out as some sort of experiment.  Bitcoin succeeded as the first attempt to create a decentralized store of value.  Ether seems here to stay as a decentralized smart contract service provider.  A few of the speedier alternatives to Ether like Tron and EOS have found their primary use cases in online gambling, and it stands to reason that one or more of those will be with us for some time to come, insofar as people will always love to gamble.  The success of Dogecoin surprised its creator more than anyone; he'd created it as a kind of experimental joke, then had to watch it get suddenly and unexpectedly serious.  More expressly serious cryptocurrency experiments—such as the BOMB token deflationary experiment—will surely continue to be conducted.  But most cryptocurrency experiments have already failed, and failed quickly.  Only time can tell which experiments will prove most successful, but cryptocurrency-based blockchains, in my opinion, are here to stay.

And that’s not just my opinion.  It’s also the opinion of many businesses that are using, building, requesting, or providing a variety of information technology tools and services that could only ever be built on a blockchain.  By extension it's also the opinion of the scores of developers investing their time—and the venture capital firms investing their money—to help create these business solutions.  Another opinion I share with a subset of these businesses, and developers, and VCs is that the Factom protocol is an incredibly undervalued blockchain project, likely to form the basis of many new information technologies with consumer-level, enterprise-level, and society-level importance.  

Factom: The Data Integrity Protocol

Factom has already been used to win an international copyright lawsuit.  It sees regular daily use by a host of smaller clients.  It's also seen substantial interest by the likes of the US Department of Homeland Security and the Bill and Melinda Gates Foundation (in the form of development grants).  Given these signs and others, it seems safe to say that Factom, too, has already proven a successful blockchain experiment.  The biggest hurdles it currently faces, as I see it, involve developing it to a full-blown enterprise ready protocol, then getting it into the hands of the wide variety of people who would be eager to use it.

The Factom Protocol was launched way back on September 1st, 2015.  As a point of reference, that’s around the same time Ethereum’s mainnet launched, making Factom positively ancient in cryptocurrency terms.   It’s primarily the brainchild of Paul Snow, CEO of Factom Inc., the company that designed the basic protocol, primarily financed by more traditional VC fundraising methods rather than through a massive initial coin offering, as has become the norm for most later (and most failed) cryptocurrency projects.  Factom Inc. holds over a dozen patents relating to the protocol and its applications, but the protocol’s ecosystem has now grown far beyond the confines of a single company.  The protocol is currently being run and developed by a large, dedicated, and most importantly decentralized community of stakeholders, speculators, and pure enthusiasts.  Factom Inc. created the Factom protocol, but it no longer either owns or controls it.  

The more I learn about Factom the more I like it: as a technology, as a community governance model for decentralized collaborations, as a unique form of distributed consensus mechanism, and as an epistemic tool for helping sort facts from fictions in an era of fake news, deep fakes, and alternative facts.  

Just for clarity ... this dude said none of these things

I’m currently so positively obsessed that, as someone who never knows what he really thinks until he writes about it, I feel compelled to write a series of focused pieces discussing the many reasons to be excited about the Factom protocol’s prospects, along with a few (I think surmountable) reasons for concern.

To start I just want to briefly answer two questions:

1) what is the Factom Protocol?

2) why is Factom needed?

What Factom Is

Factom is an open-source data integrity protocol.  Simply put, Factom organizes and records data entered into the system by users, then permanently secures its own blockchain by using the cryptographic security of independent blockchains (currently Bitcoin and Ethereum, though other chains could be used).  At base blockchains are simply public, distributed, effectively unalterable data repositories; as a result, the data records that Factom organizes and then "anchors" into separate blockchains become unalterable as well, despite Factom's blockchain being run (by design) by a finite number of nodes.

Importantly it's up to Factom users whether they enter the data they wish to secure directly onto the Factom blockchain, in full, or simply enter a hash that uniquely represents that data.  This latter option allows Factom users to keep public, tamperproof data records without ever needing to make the data itself public.  Hashes serve as “data records” because if even one value were to be altered in the original data, a different hash would have been generated.  Factomizing any data set —whether it's a contract, sales report, court proceeding, audio recording, or any other digitized file—can thus ensure that data remains unaltered after it was first recorded by literally rehashing it, then checking to make sure that matches the original, permanently recorded hash, as it remains recorded on the blockchain.

I think of it like this.  When someone touches something and leaves a fingerprint, that fingerprint provides a publicly accessible record that they—specifically that exact person and not someone that just sort of looks like them—touched that object.  Factom uses cryptography to give any set of data a kind of fingerprint, then makes that data set metaphorically “touch” the Bitcoin and Ethereum blockchains to leave its fingerprint there, forevermore.  But in the same way that the whole person isn’t left behind when they leave a fingerprint, and must instead be matched to the uniquely identifying traces they leave behind, Factom doesn’t need to record a full copy of the information it makes touch the blockchain; it can record a full copy, it just doesn't need to.

Photo Credit: Mad House Photography, licensed under CC BY 2.0

Unlike fingerprints, however, the nature of a blockchain ensures that data imprinted via Factom always gets timestamped, just based on the block sequence at which the entry is made.  For now this metaphor is enough: the Factom protocol allows us to give data fingerprints, record those prints permanently onto a separate blockchain, along with the time the record was created.  Since even slightly different data sets leave entirely different digital fingerprints, it’s easy to tell whenever factomized data has been altered: it will have different fingerprints than the ones originally recorded.

What’s even better, because of Factom’s innovative two-token system, the protocol does this without ever opening up actual enterprise-level users to financial risk.  Because they tend to have quite volatile price action, traditional businesses can’t hold cryptocurrency, which economically speaking is similar to the reason the foreign currency reserves of central banks in developing countries tend to balloon: currency exchange rate volatility is a risk that increases for any enterprise over time.  Factom was designed in a way that guarantees purchasing power for enterprises will always remain stable: one entry of 1kB of data will always cost $0.001USD.

So that’s what Factom is: a decentralized protocol that uses cryptographic security to permanently (and optionally, confidentially) preserve data integrity, without presenting financial risk for users.  Or at least, that's what it started out as, but it's quickly becoming something much more, as it adapts to allow for the issuing of factomized asset tokens, a stable coin, and many other applications beyond the already massive application of data integrity.  But staying focused on its initial, primary use case, one might wonder: what's so important about data integrity, and what's so preferable about doing it way Factom does it?

Why Factom Is Needed

The Factom whitepaper begins with a simple statement by Snow that summarizes the entire project’s ethos, making it the best place to start:

“Honesty is Subversive.”

The Factom Protocol was developed by envisioning a world in which honesty can be proven, not just for financial transactions as Bitcoin and newer cryptocurrencies allow, but for anything we might imagine.  Blockchain ideology is all about trustlessness and permanence.  Bitcoin does this for financial transactions, i.e. it provides an immutable record for claims that one person has paid someone else.  Factom does something similar for factual claims in general.  Bitcoin has the potential to subvert the financial industry by decentralizing value transactions.  Factom has the potential to subvert lies by decentralizing factual claim validations.

There are myriad reasons why ensuring data integrity is important, ranging from legal to political to business to research to technological contexts.  It is increasingly recognized as “a critical aspect to the design, implementation and usage of any system which stores, processes, or retrieves data.”  Auditors want to ensure a company’s books have not been “cooked,” and one way to do that is to use data integrity practices to demonstrate that daily records of sales, purchases, and payments have not been altered post facto, and are accurately reflected in a company’s tax filings and quarterly reports.  Financial regulators increasingly hope to curb misdealings by enforcing stringent data integrity practices on financial institutions.  Doctors want to know that positive results from clinical trials are derived from daily patient records that have never been tampered with, so drug manufacturers are increasing required to provide such data integrity assurances.  Counterparties in contract disputes where one party has lost their original copies of a contract need to be certain nothing has been retroactively altered in the “original” agreement presented by the other party.  Programmers want to ensure their algorithms never get fed corrupted information.  The public needs to know that footage from security cameras has not been altered.  And so on.

Additional examples of the need for reliable, easy-to-use data integrity protocols could be provided ad nauseum, but the point should already be clear: data integrity has become an essential part of the modern world.  Blockchain technology allows for better data integrity methods than traditional technology does, and Factom does this better than any of its competitors (both important points to which a future post will be devoted).  And that’s why I like Factom.

Or at least, that’s one of two main reasons that I like it.  The other is that Factom’s community seems generally healthy and productive even when they’re arguing, when their token price dips and "hodlers" get antsy, or when things get tense for any reason whatsoever.  FCT is still somewhat of a hidden gem as the community's focus is on development, governance, and increasing usage more than generating hype and buzz, but I'd argue for very good reasons: unlike many cryptocurrency projects, every FCT has a true, objective, calculable value (at least in the very short term, i.e. for protocol users rather than token speculators).  Marketing and promotion are important for all sorts of reasons, but the best way for the Factom community to meet the hopes and expectations of its token holders is to continually improve the protocol and get ever more people using it, not to artificially pump its price up with bounty programs or airdrops.  Explaining why will require unpacking the protocol a bit more technically, a task which I will leave until next time.  

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.  

Next: How Factom Works