Why is the Factom® Protocol unique?
The Factom® Protocol is unique for many reasons, but this document explains the top 5 reasons without getting too technical:
1. Fixed price per entry into the blockchain
2. Fully decentralized blockchain
3. Pure data blockchain
4. No need for businesses to touch cryptocurrency
5. Anchored into the Bitcoin Blockchain
Let’s go through each of these points in some more detail.
1. Fixed Price per Entry into the Blockchain
Most blockchains have one-token, you are probably familiar with Bitcoin, which is the token of the Bitcoin blockchain. The Factom® Protocol is different because it operates a “two-token” system; these tokens are:
• Entry Credits
The “Factoid” (FCT) is the name given to the tokens that are created by the network. These tokens are issued to the organisations running the Factom® protocol servers and are what we call “Variable price” tokens. They are called variable tokens because their price in relation to United States Dollars (USD) varies over time.
The “Entry Credits” (ECs) are the tokens that are spent (burnt) to enter data onto the Factom® blockchain. Each EC allows 1 Kilobyte (KB) of data to be written to the blockchain. ECs are a fixed-price token, which means that an EC will always cost $0.001 USD (one-tenth of a cent).
ECs are created by destroying (burning) FCT. At the time of EC creation, the software asks the blockchain for the latest conversion rate between FCT tokens and EC tokens. This rate is set by an “oracle” (software checking the current trading price of FCT). If the price is $10.00 per FCT, then for each FCT burnt 10,000 ECs will be created ($10 x 1,000 ECs per $1).
This is a great feature because it allows organisations using the Factom® protocol to effectively budget their blockchain costs. If an organisation knows they will enter 1000 entries a day, they can calculate that their cost will be $1 per day (One EC = $0.001).
Other blockchains require paying for the data entry in their variable price token, which creates budgeting issues. Others have two variable price tokens, one for storing value and the other for paying to make a transaction.
Technical note:ECs are not considered a “stable coin” despite being “pegged” to a FIAT currency. This is because ECs are non-transferable. Once you create an EC, you cannot send the EC to another entity.
2. Fully Decentralized Blockchain
Development of the Factom® Protocol started in June 2014 by the company called Factom® Inc. Factom. Inc hosted an Initial Coin Offering (ICO) in 2014 and spent 4 years using the proceeds from the ICO and other activities to build out the features of the Factom® Protocol. During this period, Factom® Inc ran all the Authority Set Nodes (the servers tasked with providing the infrastructure of the Protocol).
In May 2018, the Factom® Protocol became decentralised as the task of operating the network nodes (servers) moved from Factom® Inc to the first set of 11 Authority Node Operators (ANOs). This was closely followed over the next 4 months with more ANOs being added to the network.
At the time of writing, there are 25 ANOs hosting 51 nodes (two nodes each). In future, there will be 65 ANOs hosting one node each for the protocol.
The governance is also a decentralized process. All governance documents are created, discussed, and ratified by the whole Factom® Protocol ecosystem. Document discussions are hosted on a public forum where all parties with interest are invited to make their suggestions and comments for documents up for discussion.
3. Pure Data Blockchain
The Factom® Protocol is designed so that any data can be entered into the blockchain. The nodes (servers) operating the network do nothing with the data that is entered, the nodes just store the data. This is the definition of a “pure data blockchain”. The power of this feature cannot be seen without comparing to other blockchain implementations. For this example, we shall use Ethereum.
Entries into the Ethereum blockchain are actually sets of instructions which the network runs. If there is a mistake in the set of instructions, the process will not run as intended and issues will occur. Data entered into a blockchain cannot be edited, so any mistakes are permanent.
Errors in the instructions cannot occur with Factom® because the network is not using the data as instructions. The Factom® Protocol proves a piece of information existed at a certain time and was entered by a specific organisation/person. This simple storage of pure data is very powerful and can be used by developers to create applications on top of the Factom® Protocol built in the programming language of their choice.
4. No Need to Touch Cryptocurrency
Many orgnaizations want the power of a decentralized blockchain but are unable to hold cryptocurrency for internal or legal reasons. For most blockchains, this is an insurmountable problem and forces organisations to move to private solutions (with less powerful use cases) or to abandoning blockchain technology altogether if their solution cannot be realised on a private or permissioned blockchain.
Organisations wishing to use the Factom® Protocol to secure their data can purchase Entry Credits (ECs) from any token holder using traditional (FIAT) currency. The holding of ECs is not considered a cryptocurrency because the ECs is more like a non-transferable ticket allowing data to be entered into the Factom® blockchain.
Another alternative for users is to find a Factom® Protocol Blockchain-As-A-Service (BAAS) provider who will secure the data for you onto the blockchain. The user can send data to the BAAS provider, and the BAAS provider will enter the hashes into the Factom® blockchain for an agreed fee.
5. Anchoring into the Bitcoin Blockchain
The amount of processing power on the Bitcoin network greater than the combined processing power of the top 150 supercomputers combined and therefore provides a very powerful cryptographic proof that no entries were changed and can’t be modified by another entity with a more powerful network because none exists.
To add this powerful feature of the Bitcoin network into the Factom® Protocol, the Factom® blockchain is “hashed” after every block and an entry is made into the Bitcoin blockchain (an anchor). It is, therefore, possible to prove that the data returned from the Factom® Protocol has not been tampered with by comparing the Factom® blockchain with the entries in the Bitcoin blockchain.
The Factom® Protocol currently anchors into Bitcoin because it has the largest hashing power of any blockchain network in existence. If this was to change, or the fees to anchoring into Bitcoin become too high, then the Factom® Protocol can anchor into any other blockchain.