Before reading the article below, I suggest you to read my previous article. It is an overview of Factom, highlighting the huge potential of the project.

After having followed and read a couple of forum about Factom, there is one thing that often comes up. How can Factoids (FCT) gains value over the time? People tend to think that Factom is an obscur project, which involves two types of currencies: FCT and Entry Credit (EC). It is pretty uncommon in the crypto and that might be the source of some incomprehension. Will try to clear out why Factom designed its project in such a way, why it is very smart, and how and why FCT will can a tremendous value in the future.

Entry Credit & Factoid – Why two tokens?

Why two tokens you may ask? Well, a couple of things must be apprehended.

Avoiding block chain spamming

Factom developed a block chain, which is a stream of data being time stamped every given minutes. To avoid any block chain attack or spamming, there must be a cost to insert data into the chain. In Ethereum this is the gas you pay, for Bitcoin, you also have fees to pay, and so one. There must be a digital support to pay this entry ticket.

Cost of storage

Factom aims are making data reliable, immutable and honest. To do so, storage of data, be it hash of data, must be considered. Data will be stored on the block chain, and it should have a cost to store data. Should segregate data from their source and apply a different price according to its origin? No. 1kb is 1kb. When a client will store data on the Factom block chain, whatever is the data, for a given amount of kb, the price must stay the same. This, way companies can budget their costs.

Incentive to keep the network safe

The Factom network is organized around 32 federated servers that watch the transactions. Running a server has a cost (electricity bills, maintenance, IT people), and thus, such servers must be rewarded for their action. As for the entry ticket to the block chain, there must be a digital and decentralized mean of payment for this incentive to keep the network clean and safe.

Interface pro business

Factom is not another project, sailing in uncertainty. The team behind Factom aims at delivering a solution to existing businesses. The legal aspect of the offered solution must be crystal clear. Currently, crypto currencies don’t really have a legal status, and the future clients don’t necessarily want to manage a crypto currency holding. The point is, the solution must transparent and seamless regarding the use of the underlying token.

Summary

To sum up, we want 1) to charge the entry on the block chain to avoid spam, 2) to pay the servers that keep the network alive and whose value increase with the use of the network to insure competition and thus quality, 3) to insure a fixed price per kb stored on the block chain, 4) to have the level of security of a block chain without the complexity of using crypto coins.

FCT will take the role of 1) and 2)

EC will take the role of 3) and 4)

Here are the fundamentals. Hope you get the idea now.

Relation between EC and FCT & Price Dynamic

Important note – milestones

Before we continue, a clarification must be made on the state of the Factom project. Protocol is deployed through 3 milestones. Currently, we are milestone 2 (M2). During M2, the 32 federated servers (FS) are owned by Factom, and there is no FCT reward. You still pay to access the block chain, paying a fixed amount per kb, but in the meantime the FS are not paid for their service. This will change with M3, which is to be deployed in 12-18 months. M3 will decentralize the FS, and once decentralized, a fixed reward of 73,000 FCT will be paid to them every month. On the Bitcoin chain, miners get bitcoin, on the Factom chain, they get FCT.

After their ICO, they issued around 8.7 mln FCT. They arbitrarily decided to set the yearly supply inflation to 10%. The maths are: 73,000 * 12 = 876k FCT = 10% of the amount issued after the ICO.

Relation between EC & FCT

This important note being made, now here are the numbers to have in mind to understand the smart price dynamic. FCT will be both the asset with a floating value, and the entry ticket to the block chain, and EC the way to get a fixed amount of data stored for a fixed price.

FCT has a floating price, based on offer and demand

EC are set up in a way that 1 EC = 0.001 USD = 1kb stored

FCT will be paid to the FS. These FS will sell them to pay their bills and/or take profit. There will be then a market price for FCT, based on offer and demand. The demand will stem from people willing to store data on the block chain. Why? Because to get EC, you need to burn FCT – FCT burned are destroyed for good and removed from the book. The number of EC you get from your burned FCT is:

Number of EC = (Number of FCT burned) * (FCT Market Price) / 0.001

Example: FCT currently trade at 12 USD. If I burn 1 FCT with market price 12 USD, i’ll get 1 * 12 / 0.001 = 12,000 EC. I’ll be able to store 12,000 kb of data.

To summarize, once M3 is deployed, 73,000 FCT will be paid each month to FS and you’ll have to pay 0.001 USD to store up to 1 kb of data.

Note 1: something really important. Until M3 is deployed, Factom will offer its service, consuming then FCT. The supply will ONLY decrease until M3 is out.

Note 2: You can get EC by two means. First option is to convert your FCT yourself into EC through the Enterprise Wallet. Second option is to use Factom Inc services. You can buy EC from them directly. The important thing is that BOTH solutions burn FCT. Even if big clients use Factom direct service to get ECs to store their data, the supply of FCT will decrease. Factom owns some FCT, and can also buy them on the market. Keep in mind that for EACH EC created, FCT need to be burnt. By buying EC directly to Factom Inc, the clientele doesn’t have to mess with crypto coins. The seamless and crypto transparent aspect is solved this way.

FCT price dynamic

I read comment of people who don’t understand how the price of FCT could rise ten, hundred times. Well, it is fairly easy to grasp the idea:

New supply of FCT is limited to +73k/month once M3 Out. Zero before that. These 73k are paid to the FS. They might want to accumulate, and thus not to release these new FCT on the sell side.

Every single EC in circulation required FCT to be burned according to the formula above.

Every single new client burning FCT is an additional factor for the FCT price to rise.

Current client target are big banks processing a shtload of data everyday. Expect the FCT supply to drop quickly once a contract is signed, which should happen sooner or later.

Most of the current supply of FCT is in the hands of traders who’ve accumulated and wait for the price to explode.

There is absolutely no cap limit for FCT price. If the demand becomes real – and there is already a need for such a service – sky is the limit. I would easily compare FCT to the metal Indium. It was worth nothing before the usage become crucial for modern technology. It is just a bargain to be able to buy some at such a low price. The current FCT market cap is below 200 mln. Below DogeCoin.

Milestone 3 – What is to come

Key data to have in mind

To end this article, i’ll summarize what is to come with M3, which should be released in 12-18 months. The features will be

Decentralization of the 32 Federated Servers

Payment of the 73k FCT as an incentive to the FS

And a third point that needs to be mentioned, in the cryptosphere one of the rule is the consensus. Everything should be subject to a consensus in the crypto area. The Factom team knows that, and this is why when M3 is release, if the the protocol is stable enough, they’ll will make the USD price of 1 EC subject to offer and demand. The FS will then be in competition on this aspect.

Bi-equilibrium point

A bi-equilibrium point will then have to be established through offer and demand. The FCT price will be subject to offer and demand – the demand is supposed to rise with the protocol usage – and the USD price of 1 EC will also be subject to offer and demand.

Articles related to FCT valuation and EC usage

Reddit – FCT, EC, and the Factom Financial Ecosystem

Reddit – Community FAQ – FCT and EC relation

Medium – I love negative feedback – by Brian Deery from Factom

Conclusion

We have here one of the few crypto projects that already deliver and solve real world issues like a boss. A bi-token project which was perfectly designed to satisfy FS and end users. A market cap below the 200 mln USD. Factom is in contract negotiation – which means the clients WANT the product – with three large banks. Offers already multiple products. A company led by professionals who launched successful projects. And a token whose price is perfectly function of the usage.

Now I hope you understand the FCT source of value.