Today I will review the cryptocurrency Factom. I’ll provide a brief rundown of its model, discuss its objectives and consider positions we could take to support its development and make a little along the way.
So what is it? To understand Factom and it’s fantastic potential, you first need to understand why Bitcoin was so innovative. So Bitcoin’s breakthrough back in 2008 was the concept of decentralised unchangeable database. Prior to Bitcoin, and in particular its “blockchain”, databases were always centralised, even if they were run across different servers and machines. There would always be someone, the network administrator, who got potentially go in and change things around. This is fine, databases are great ways of managing information, but the information is only as trustworthy as the people managing it. Bitcoin is based on a blockchain, which is essentially a database. Thousands of independent computers manage this database and every half hour or so they update it. They reach a consensus on what this update should look like and create fixed “blocks”. If I move Bitcoins from different places on this database, these computers will see leaving point a, arriving at point b, going on to point c and ending up at point d. Different computers will only have different pieces of this chain, but together they can confirm that the Bitcoins at point d, are in fact real as they know where they have been. A rogue computer on the network, that adds to the database that someone suddenly has a million Bitcoins, will be discounted as false, as the other machines would see that it hasn’t been sent from anywhere. Essentially the machines together create one “true” database that they all agree on.
So where does Factom come into this? Well since Bitcoin’s inception hundreds of new currencies have been working out ways to apply the concept of having a single “true” database. Factom was one of these new one coins. It creates a data layer that relies on the Bitcoin database for its source of truth. On this data layer it can upload documents, forms and information. Anyone who has worked for any large organisation will know how difficult it is to ensure everyone is using the same documents and forms. I have worked for small charities to large multinational organisations and they all had issues with staff using the same paperwork. In fact companies spend a lot of money ensuring they have systems in place to make their employees use the same paperwork. An example of this is quality process systems such as those (expensively) accredited by ISO 9001. To ensure staff follow a process to ensure the quality of a product or service, ISO 9001 requires staff to follow procedures that are usually written down somewhere. But it gets confusing when these processes are updated again and again and again. If the people working in the organisation don’t distribute the new procedures properly, employees may end up following previous versions. This doesn’t sound very exciting, but it’s actually crucial to ensuring the product is delivered correctly and can actually be dangerous and life threatening. In the case of health and safety, correct procedures can be the difference between an employee working safety and seriously injuring themselves. So you can start to see a demand from organisations of all shapes and sizes. Not following correct procedures can result in poor quality standards, lawsuits and even death. Factom allows organisations to host their forms on its data layer, so those using it know where that correct one is. That hosted document is the correct one, as it has been hosted and then the decentralised database keeps confirming it until the customer updates it with the next version.
So who is using it so far. Well some of the major announcements over the last couple of years allows you to start to see its demand profile. One of the major ones was the Bill and Melinda Gates Foundation with a project that aims to store medical records with Factom. Another is a project to rationalise the processes (some of which are still paper-based) associated with the US mortgage market. Finally, there have been some projects to register land titles through Factom in Honduras, although there were rumours that the project isn’t succeeding all that well. These different examples demonstrate a diverse use case for Factom across public, private and third sector organisations. They also demonstrate that even after IT becoming widespread, there is a need for a single source of digital truth. You can start to see how revolutionary Factom could be to the managing of forms, amongst other information. Its why its catch line is currently; “Making the World’s Systems Honest”. This approach is considered a “blockchain-as-a-service” model, where organisations pay for use of another’s blockchain, opposed to developing their own.
So finally, supporting its development. Factom is one of the few blockchain projects that seem to have a genuinely mature product that is meeting a real world demand. Don’t get me wrong, blockchain technology has a very bright future, but a lot of projects are still in early stages. Factom has a solid product, customers and I assume revenues. It conducted a round of Series A financing on BnktotheFuture last year, which I missed. I am hoping for another round. Its cryptocurrency, Factoids, are used by individuals who want to add information to the data layer. They have been traded since November 2015 where they started at around $0.13 and today are trading for $6.53. There has been a spike in the price over the last few days, which I have benefited from, as I took a position at $4.70. There is speculation of some upcoming announcements about partnerships with financial institutions which is likely pushing up the price. However, Factom intend the Factoids to be used for its service and are trying to avoid its use a speculative investment. They therefore do not have an upper limit of the amount that could be created. Bitcoin has such an high price due to its limit being 21 million. A currency that can be printed forever should be less enticing for investors to hoard them. Today’s price values the Factom network at $56 million, which is a lot for a relatively new company. However, if it realises its ambitions this could be one of the world’s major “sources of truth” which could see its value being much higher. A statement often bounced around the forums is that Factom won’t be valued based on just its business attributes, but valued on the information on its network. If this network does host land titles, medical records, mortgage details, etc, it will be in theory worth a huge amount more than $56 million. However, this may not be for years, even a decade, so tread carefully. I am aiming to continue to take long term positions, recognising the potential for a long term increase of value. There maybe also some gains to be made taking short term positions and selling on the highs and buying in again on the lows, but never buy more than you can afford to lose. Factom is definitely reflective of the types of businesses that the blockchain era will usher in, I think it’s one that is definitely worth keeping an eye on.
Source: Mutual Spring