How will your garbage disposal know to trust your dishwasher?

While the question might not sound serious, it’s key to understanding the power of Factom, the much-anticipated blockchain-based recordkeeping network, according to its creator Paul Snow.

“Devices have reputation,” Snow explains. “If the garbage disposal keeps asking for power and the refrigerator never sees any power used, the fridge should think there’s something wrong.”

What will settle this futuristic kitchen argument over power use is that the fridge has a dependable record of its past interactions with other appliances, something Snow argues that blockchains, and his version of the technology, Factom, present a solution to.

But, while Snow’s example may sound odd, it’s a future that is of increasing interest to the bitcoin community as it seeks to position itself as a solution for the Internet of Things revolution, the forthcoming tech transition that will see everyday appliances empowered with more advanced computing capabilities.

While “bitcoin” is increasingly part of this conversation, what researchers like IBM’s Paul Brody are often speaking positively about is the digital currency’s public ledger, the blockchain. IBM’s ADEPT white paper, for example, proposes using Ethereum smart contracts to help washing machines automatically order detergents.

But, a key element of this interaction is digital trust, and to Snow, this trust doesn’t necessarily need to come in the form of a coin.

If bitcoin aims to produce a viable digital currency, Factom aims to create a digital piece of paper, a slate on which developers can draw data structures, interconnections and dependencies for their applications.

“If I need to create a record of the creative process of making a movie or an article and I want version one, version two, version three and I want this certified that in the end that a particular data I finished this work,” Snow explains, “Factom gives me proof of that process.”

Factom in practice

To showcase how Factom would work, the project recently secured a digital version of the Gutenberg Library, a total of 29,000 books, against the bitcoin blockchain.

But, if one expected Snow to brag about the achievement, he says the proof of concept was more about grabbing attention than showcasing how Factom wants its technology to be used.

“That wasn’t the point,” Snow said. “The point was a simple application that shows how to use the API. What would be interesting is to secure medical records. What would be interesting is to secure legal documents, or a will and then the modifications of the will over time.”

Still, securing such a large database of written material could be useful. In particular, members of the project suggested that such a security method could be appealing to legal research providers such as Lexis Nexis or the West Law Library.

“Where it becomes useful in cases like that, we know with 100% certainty that the data that went in, or when it gets changed,” Factom team president Peter Kirby added.

Snow contends that this can ensure written materials aren’t corrupted, so that a digital kid’s book, for example, couldn’t be tapered with.

“They don’t get corrupted with spam, so someone doesn’t run through ‘Alice in Wonderland’ and stick ‘jiggly lady’ all through the book,” Snow added.

The need for Factom

The ‘Alice in Wonderland’ example cuts to the core of what Factom does, according to its team, ensuring a document can be fingerprinted via an automated process, so that books or records can be easily analyzed for changes and even made to autocorrect.

Factom’s technology would scan the library periodically, comparing past versions to ensure no changes were made. (A more technical breakdown can be found here).

“Now you have a self-repairing library that doesn’t need to have the same level of security. There’s no privacy concern with these books. It’s just making sure that they remain pristine,” Snow said.

Snow argues that this ability didn’t exist even five years ago, as the key innovation provided by the blockchain is the ability to prove fact, to “give digital artifacts history and authenticity”.

While the bitcoin blockchain can be used for recordkeeping, and is used by Factom, its protocol helps solve issues that it believes using only the bitcoin blockchain would pose. Chief among them is the blockchain bloat problem, Factom chairman David Johnston contends.

“If you use bitcoin, you now have a huge new source of bitcoin transactions,” he said. “One of the beautiful things about Factom is its taking all of these things and putting them together and with one hash, every 10 minutes, using one transaction to represent all of those records. It lets you take things off the [bitcoin] blockchain but also secure them to the blockchain.”

Perhaps most importantly, the Factom team stresses that the protocol provides cryptographic isolation. This means that while Factom stores records on the bitcoin blockchain, users aren’t exposed to any cryptocurrency and the related legal requirements.

“Cryptocurrency isolation is critical to limit money service business (MSB) issues, because if you actually have a cryptocurrency in the app, but you’re just using it to manage the data through other bitcoin 2.0 protocols, nonetheless it is looked upon with suspicion from FinCEN and SEC,” Snow claimed.

Factom as a business

Still, while Factom is primarily seeking to become a foundational technology, the project is also looking to develop a business community similar to the one that has sprung up around the bitcoin protocol.

“It’s the job of the protocol to build as many things building on top of Factom to collect as many of those transactions,” Kirby said. “On top of that we want 1,000 businesses to thrive in building their own verticals, title, medical records, banking systems.”

This strategy involves first setting up service businesses that will seek to promote Factom in particular use cases, while leveraging outside expertise in these target areas.

“Service business would be like, say there’s a land titling problem,” Snow continued, “we set up an immediate company using inserting our expertise to handle those problems to create a revenue stream.”

Factom, in turn, will earn a small “toll” on every transaction, with the sum of all these smaller transactions amounting to revenue.

Moving forward, Factom intends to hold a crowdsale beginning this March on decentralized application marketplace Koinify to incentivize a network of developers toward this goal.

Questions raised over claims

Factom’s impressive-sounding technology is accompanied by similarly impressive stories of its adoption by major financial institutions.

The Financial Times, for example, reported on 3rd February that Factom was working on a “pilot program” with the Development Bank of Singapore, the island-nation’s largest bank by assets. The program would “store customer records in the blockchain”.

DBS has denied that the program exists, while acknowledging that it had “exploratory” discussions with Factom. In response to questions from CoinDesk, the bank said:

“We are not working with Factom on any pilot project nor do we have a collaboration in any form.”

Factom had “conversations” with a DBS managing director, Mikkel Larsen, according to Peter Kirby who was interviewed for the FT article. Kirby said the facts were “garbled” in the report and added that he had asked the FT for a correction.

Larsen heads the bank’s efforts to understand digital currencies and its tax and accounting policies unit, according to his LinkedIn profile. He is also an advisor to the Singapore startup Tembusu Systems.

The FT reporter, Sally Davies, said Kirby confirmed to her that Factom is working on a project with DBS and that the story is accurate. She said she has received a request for clarification from Kirby and that she would raise the matter with editors at the paper.

Joon Ian Wong contributed reporting.

Images via Pete Rizzo for CoinDesk