by D-Lux

Introduction and Overview

Blockchain startup Factom began as an informal conversation between developer Paul Snow and blockchain entrepreneur David Johnston in January 2014. “We set out with a simple goal,” they write, to “create, design and build products to make the world more transparent and honest.” Today Factom has 26 employees, with headquarters in Austin (Tex.), and satellite offices in Sunnyvale (Calif.), Shanghai, Beijing, and London. 75% of its clients are international, and more than 6.5 million entries have been secured with the network so far. Having just released M2—aka Milestone 2, or Factom Federation, the second major iteration of the Factom protocol—we thought it was time to catch up with the team and see how things were looking on their end. But first, some context …

In the most condensed sense, Factom helps ensure data integrity. The Factom network does this by allowing hashes of large amounts of data to be stored on secure blockchains, such as those of Bitcoin and Ethereum (though Factom itself is blockchain-agnostic). As others have pointed out, however, to mistake Factom for the apparent simplicity of its service may be akin to mistaking Google, in its early years, as an elegant little search engine. For the first time, the Factom network allows for a base-layer of trust to exist across all data, everywhere. If successful in its ambitions, Factom could become a ubiquitous protocol layer in an increasingly digitized world.

Last year was a busy one for Factom. Beginning in January, the team quietly secured a number of collaborations and partnerships—with iSoftStone (to integrate blockchain tech and smart city solutions for several regions in China), Ancun (to integrate Factom’s blockchain tech with Ancun’s electronic data notarization services), Rongdu Technology (to provide a blockchain backend for Rongdu’s existing fintech software), SmartContract (to give Bitcoin and Ethereum smart contract developers access to Factom data), and DataYes and Intrinio (to verify and audit data from the U.S. and Chinese financial markets, respectively).

On Oct. 5, 2016, Factom announced the success of a $4.2 million Series A capital raise, led by billionaire investor Tim Draper. (Draper auspiciously stated afterward: “I believe that the Factom team has the opportunity and the potential to build a company greater than Oracle and Palantir and IBM combined.”) What followed was a series of even higher-visibility partnerships. On Nov. 18, the Bill & Melinda Gates Foundation announced they had awarded Factom a $500,000 grant “to build a Proof of Concept prototype of a digitized medical record system for individuals living in remote developing areas of the world.” Three days later, Smartrac—the leading provider of radio-frequency identification (RFID) products worldwide—announced they had partnered with Factom to create an integrated document-verification and -authentication solution. And last month, the U.S. Department of Homeland Security revealed a second, follow-on grant to Factom designed “to advance the security of digital identity for Internet of Things (IoT) devices.”

During this time, behind the scenes, Factom’s developers were working on M2, which sets in place the consensus algorithm for the Factom protocol—the software supporting distributed processing—as well as enables transaction times in a matter of seconds, supports multiple blockchains including Bitcoin and Ethereum, and provides a more robust network, as well as new tools in its development suite/public testnet. A milestone for Factom, M2 is arguably also a landmark for the crypto space’s ongoing attempt to cross the chasm from theory and code into real-world use.

Amidst the hubbub, I had the chance to speak with Factom’s founder and chief architect, Paul Snow, and ask him a few questions about Factom, M2, and where he believes blockchain tech is headed.

Q&A with Factom’s Paul Snow

Q: Can you please give a brief overview of M2—what it is, what capabilities it will allow, and how it fits into Factom’s overall roadmap?

Milestone 2 (what we call Factom Federation) provides the ability to run the Factom protocol over many different servers. Our goal is to distribute the execution of the protocol over servers run by many different parties.

Each of the Federated Servers double-checks the work of all the other Federated Servers while also administering the protocol over a small slice of the protocol themselves. If any of the servers messes up or falls offline, the servers select a replacement from the pool of Audit Servers and demote the faulting Federated Server to the pool of Audit Servers.

In this way, Factom Federation ensures that no server can misbehave or perform poorly without being replaced by a server (potentially, and even very likely, operated by another party).

This system of oversight and management does a much better job of ensuring fair and distributed protocol-providing data services than a centrally managed service.

Q: Factom’s Chief Scientist, Brian Deery, has said that it takes about as long to wrap one’s head around Factom as it does Bitcoin. Why do you think this is the case? The details of the tech aside, do you think there are general conceptual hurdles that prevent a quick understanding of what Factom is aiming for?

General conceptual hurdles do exist to understanding Bitcoin as well as Factom. The first of which is the idea of a distributed ledger that everyone can have a copy of, and to be assured that their copy is exactly the same as every other copy. This is a simple thing, but somehow nothing about how computer systems and businesses have operated in the past prepares us for what this is and what it means.

For example, we all understand the scene in It’s a Wonderful Life where the bank examiner shows up to go over the books at Bailey Building and Loan. He has to come to the bank because he doesn’t have the records (or the summary of the records) required to understand the state of the bank—that is held (and only held) in the books at Bailey Building and Loan. Of course.

Computers allow us to access the books in many locations. But even today we (in the back of our minds) know that the books can only be in one place.

Well, this isn’t true. The books can be distributed. And with Factom, not only can the books be distributed, but cryptographic proofs can be used to validate and verify particular parts of those records while holding back critical information that might preserve privacy or business processes that are outside the purview of the examiner.

The implications and ramifications of distributed, immutable, and cryptographically secure ledgers take time to absorb and to adopt into one’s worldview. What once was impossible to consider can now be done, distributed worldwide, and adopted across jurisdictions without political permission.

The ideas are simple. The ramifications and applications take time to internalize and understand.

Q: How do you see Factom-the-protocol evolving beyond M2 and M3? Is it a matter of developing products and services on top of the base-layer tech, or do you see that base layer evolving as well down the line?

I believe Factom (or something like it) will provide a data layer to scale that allows layers and frameworks to be developed that will coordinate nearly all computer and human interactions. Such a data layer will vastly improve security. It will also (oddly enough) vastly increase privacy. Much of the “shrinkage” in business processes (where one would expect higher levels of productivity and lower error or fault rates) are due to an inability to audit processes.

A data layer such as Factom will allow for inexpensive, automated audits of processes to ensure they are measured in near real time.

You cannot manage what you cannot measure.

Q: Can you say something about Factom’s pipeline of clients and partnerships? I know a lot of those relationships are under non-disclosure agreements at the moment, but what are the industries/sectors you’re focusing on, regions of the world that are of particular interest, etc.?

We are working with the DHS [Department of Homeland Security] to provide audit trails for data collection on U.S. borders. Certainly, our technology will ensure sensors are secure against those that would tamper with them. Our technology will also provide audit trails that ensure other parties that the data collected is properly disclosed when required, the integrity has been maintained, and that data held back as irrelevant is provably irrelevant (not collected within some timeframe, or at some location).

We are working with the Gates Foundation to ensure medical records are maintained, and available to parties providing care in developing countries to individuals that may have been treated by many different organizations in the past. This application has to be available when needed, transportable to remote locations without Internet access, secure, private, and require little in hardware and human resources.

We are working on data management applications to ensure that mortgages can be processed faster, cheaper, and within the current regulatory framework. This involves auditing and tracking data collection from many different parties over time about information covering every aspect of a mortgage. Income verification, property history and maintenance, taxes paid/owed, payment histories, property surveys, zoning, etc., all produce many documents that must be reviewed in the course of issuing and maintaining a mortgage.

We do have other projects as well. At this point, all of them involve data management.

Q: It’s said that the Factom offices never close. Factom’s punch card on GitHub shows commits around the clock, seven days a week. How would you characterize the atmosphere inside Casa Factom?

We have a light-hearted but technically intense work environment. We have a great deal of passion for what we are doing. I have to admit to yelling about various technical issues, as I find them hugely interesting, and get very vested in the technical trade-offs. I’m lucky to be working with a team that (mostly) understands the technical focus, and is willing to yell back.

We have birthdays and take time to have fun. People bring in snacks frequently. We host a Bitcoin Meetup every Tuesday at our offices. We have the occasional office party, and I really enjoyed having the Factom people and their families at my house for Christmas. Peter [Kirby, Factom’s CEO,] has had the team over to his place a couple of times to celebrate various milestones.

Basically, this is a startup with a great deal of commitment and energy. We keep it light and do what we can to accommodate everyone’s needs.

And we are keeping our eyes on the prize.

Q: Do you see any potentially negative consequences to large-scale blockchain-tech adoption? Can blockchain be used for evil, or is it always on the side of good?

Anything can be used for evil. On balance, though, being immutable is a very difficult thing to be used for evil.

Q: Can you imagine, theoretically, a point in the future where all data is correct, with full integrity and verifiability? Or do you think there will always be a pull toward manipulation by those with a vested interest?

I believe there will be a future where data is recorded faithfully with full integrity. It is very difficult to lie and get away with it when you don’t have full control of all the data being recorded. Those who do have a vested interest in the manipulation of the past are largely going to be out of luck. That’s because no matter who they are, they will not want others to manipulate the past. Over time, it becomes a simple requirement for processes to be documented, just like it is a requirement (in the USA at least) to wear clothes in public. You really stand out if you don’t.

Q: What would a world with full data integrity look like? What differences would a traveler to the future notice?

A traveler to the future (i.e. all of us are headed that way) will find more people doing productive work. Less regulation. More accountability. Secure computer systems.

Cryptographic definitions of value will preclude many of the leveraged investments that make current financial systems unstable. Inflation will not be tolerated outside of walking around mediums of exchange. Central banks will be vastly reduced in influence.

And most importantly, wealth will be distributed across the population more fairly. Perhaps we will reclaim the hope of a Star Trek-like future. In technology, equality, and diversity of opportunity.

Q: You’ve said in the past that the world’s evils can be attributed to inflation. Why do you think this is the case, and how does Factom respond to this, if at all?

I do not see Factom directly addressing the evils of Inflation. Inflation is effectively a tax on all wages, savings, pensions, endowments, investments, etc., which benefits banks and financial institutions at the expense of everyone else. Indirectly, audit trails could provide faster settlement, accountability, and better-managed business processes that could hold organizations accountable. This might help.

More to the point, Bitcoin and other cryptocurrencies have already proven wrong many claims about money. When a currency undergoes deflation, spending goes up, not down. Repeatedly, Bitcoin and other tokens have seen higher transaction rates when their value goes up compared to when their value is flat or falling. Cryptocurrencies have demonstrated that the supply can increase by splitting cryptocurrency assets into finer and finer quantities as the value increases and users increase. They have shown math is a good substitute for government in backing an asset. That fair, distributed, open ledgers can work.

Q: There’s been a lot of talk about how the blockchain space today resembles the tech space of the early-’90s. In what ways to you think they’re similar, and in what ways different?

I believe the blockchain will be more disruptive than computer systems and the Internet of the ’90s. Because the Internet didn’t reform the fastest growing sector in our economy, the financial sector. Bitcoin and the blockchain have a huge potential for causing a mass extinction event in the financial sector.

Q: To some extent, the crypto space seems to be trying to move out of the “horseless carriage” phase—wherein past models and process are being “blockchainized.” What types of projects do you see, now and in the future, that use the tech to do what only the tech can do? What are the possible Lambos/Teslas of blockchain’s future?

I believe projects that eliminate waste, fraud, and abuse will be huge. Bitcoin can radically reform how value is defined, distributed, and tracked. Factom can provide radical reform for auditing and asset management. Ethereum may provide radical efficiencies for rentals, purchases, subscriptions, and more.

In 10 to 20 years, we will know who the huge performers are (the Lambos and Teslas). I won’t guess, but I am doing everything I can to make Factom one of them.

Q: Entry Credits (ECs) are currently set at 1/10th of a cent USD. What happens if the USD plummets? Would a hard fork be required for a change to the EC conversion rate?

No. The FCT/EC exchange rate is set by the Federated Servers. I believe in the case of a large fall, setting the rate to 1/2 or even 1 cent USD would be accepted by the community.

Q: The epigraph to Factom’s white paper is “Honesty is subversive.” Where did this come from, and why was this chosen as the epigraph?

This is a play on a personal political view that I call “Escalation of Righteousness.” This is the observation that some ideas simply cannot be opposed without making you look bad, leading (often) to policies and rules that really nobody supports. In recent times, this resulted in Prohibition, mass incarceration, hugely punitive punishments for DUIs, no-tolerance policies, banning of certain playground equipment, extensive helmet laws, child labor laws, etc.

“Honesty is Subversive” is based on the idea that creating accountability through immutable ledgers will be impossible to oppose (without looking bad), and holds vast potential for reform without requiring regulation or revolt.

Q: What things outside of tech (people, projects, art, events, etc.) inspire your work with Factom?

Alan Turing is the largest inspirational figure for the work I do with Factom. Understanding the nature of computational theory lies at the heart of everything I do at Factom. I also look to nature, particularly microbiology and genetics, for inspiration. In the late 1990s, I developed a unified view of computation and biology that informs my understand of computer systems even today.

Q: OK, last question: Flight or invisibility?

Flight. Not even a question. Much more interested in going places than sneaking around.

Thanks very much for your time, Paul.