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This lack of trust requires the devotion of a tremendous amount of resources to audit and verify records - reducing global efficiency, return on investment, and prosperity. Moreover, adam stradling bitcoin wiki such as the United States foreclosure crisis demonstrate that in addition to being inefficient, the current processes are also terribly inaccurate and prone to failure. Factom removes the need for blind trust by providing the world with the very first precise, verifiable, and immutable audit trail.
In the past, records have been difficult to protect, challenging to synchronize, and impossible to truly verify because of the manual effort involved. Computers automated some of these tasks, but they are even harder to protect, synchronize, and verify because computer records are so easy to change. Authority is fragmented across innumerable independent systems. Blockchains provide a distributed mechanism to lock in data, making data verifiable and independently auditable.
Factom gives businesses access to blockchain technology without getting bogged down in currencies. In this paper, we describe how Factom creates a distributed, autonomous protocol to cost effectively separate the Bitcoin blockchain adam stradling bitcoin wiki the Bitcoin cryptocurrency.
We discuss client-defined Chains of Entries, client-side validation of Entries, a distributed consensus algorithm for recording Entries, and a blockchain anchoring approach for security. When Satoshi Nakamoto launched the Bitcoin blockchain he revolutionized the way transactions were recorded. There had never before existed a permanent, decentralized, and trustless ledger of records. Developers have rushed to create applications built on top of this ledger.
Unfortunately, they have been running into a few core constraints intrinsic to the original design tradeoffs of Bitcoin. For applications adam stradling bitcoin wiki wish greater security, multiple confirmations may be required. A common requirement is to wait for 6 confirmations, which can lead to wait times over an hour. The exchange price of BTC has been volatile throughout its history. If the price of BTC rises, then the cost of transactions can go up.
This can prove adam stradling bitcoin wiki be a serious cost barrier to applications that need to manage very large numbers of transactions. Additionally, many factors including constraints on block size and reward halving could act to increase transaction fees.
Any application that wants to write and store information using the blockchain will add to the traffic. This problem has become politically charged as various parties seek to increase the block size limit. Factom is a protocol designed to address these three core constraints. Factom creates a protocol for Applications that provide functions and features beyond currency transactions.
Factom constructs a standard, effective, and secure foundation for these Applications to run faster, cheaper, and without bloating Bitcoin. Once the system is set up, including issuance of Factoids i. Factom extends Bitcoin's feature set to record events outside of monetary transfers. Factom has a minimal ruleset for adam stradling bitcoin wiki permanent Entries.
Factom pushes most data validation tasks to the client side. The only validation Factom enforces are those required by the protocol to trade Factoids, convert Factoids to Adam stradling bitcoin wiki Credits, and to ensure Entries are properly paid for and recorded.
Factom has a few rules regarding token incentives for running the network and for internal consistency, but it cannot check the validity of statements recorded in the chains used by its users. Bitcoin limits transactions to those moving value from a set of inputs to a set of outputs. Satisfying the script required of the inputs generally requiring certain signatures is enough for the system to ensure validity. This is a validation process that can be automated, so the auditing process is easy.
If Factom were used, for instance, to record a --deed transfer of real estate, Factom would be used to simply record the process occurred.
The rules for real estate transfers are very complex. For example, a local jurisdiction may have special requirements for property if the buyer is a foreigner, farmer, or part time resident.
A property might also fall into a number of categories based on location, price, or architecture. Each category could have its own rules reflecting the validation process for smart contracts.
In this example, a cryptographic signature alone is insufficient to fully verify the validity of a transfer of ownership. Factom then is used to record the process occurred rather than validate transfers.
Bitcoin miners perform two primary tasks. First, they resolve double spends. Seeing two conflicting transactions that spend the same funds twice, they resolve which one is admissible. The second job miners perform along with the adam stradling bitcoin wiki full nodes is auditing. Since Bitcoin miners only include valid transactions, one that is included in the blockchain can be assumed to have been audited. A thin client does not need to know the full history of Bitcoin to see if value they receive has already been spent.
Factom splits the two roles adam stradling bitcoin wiki Bitcoin miners do into two tasks: After 10 minutes, the Entry ordering is made irreversible by inserting an anchor into the Bitcoin blockchain. Factom does this by creating a hash of the data collected over the 10 minutes, then recording the hash into the blockchain. Auditing is critical, since Factom is not able to validate Entries before they are included in the Factom dataset. With trust-based auditing, a thin client could trust a competent auditor they choose.
After an Entry was entered into the system, an auditor would verify the Entry was valid. Auditors would submit their own cryptographically signed Entry. The signature would show that the Entry passed all the checks the auditor deemed was required. The audit requirements could in fact be part of a Adam stradling bitcoin wiki Chain as well. In the real estate example from earlier, the auditor would double check the transfer conformed to local standards. The auditor would publicly attest that the transfer was valid.
Trustless auditing would be similar to Bitcoin. If a system is internally consistent with a mathematical definition of validity like Bitcoin, it can be audited programmatically.
If the rules for transfer were able to be audited by a computer, then an Application could download the relevant data and adam stradling bitcoin wiki the audit itself. The application would build an awareness of the system state as it downloaded, verified, and decided which Entries were valid or not.
Mastercoin, Counterparty, and Colored Coins have a similar trust model. These are all client-side validated protocols, meaning transactions are embedded into the Bitcoin blockchain. Bitcoin miners do not audit them for validity; therefore, invalid transactions designed to look like transactions on these protocols can be inserted into the blockchain. Clients that support one of these protocols scan through the blockchain and find potential transactions, check them for validity, and build an interpretation of where the control of these assets lie usually adam stradling bitcoin wiki Bitcoin address.
It is up to the clients to do their own auditing under these protocols. Moving any of these client-side validated protocols under Factom would be a matter of defining a transaction per the protocol and establishing a Chain to hold the adam stradling bitcoin wiki. Bitcoin, land registries, and many other systems need to solve a fundamental problem: While proof of the negative is impossible in an unbounded system, it is quite possible in a bounded system.
Cryptocurrencies solve this problem by limiting the places where transactions can be adam stradling bitcoin wiki. Bitcoin transactions can only be found in the Bitcoin blockchain. If a relevant transaction is not found in the blockchain, it is defined from the Bitcoin protocol perspective not to exist and thus the BTC hasn't been sent twice double spent.
Certain land ownership recording systems are similar. Assume a system where land transfer is recorded in a governmental registry and where the legal system is set up so that unrecorded transfers are assumed invalid sans litigation. If an individual wanted to check if a title is clear i. The individual using the government records adam stradling bitcoin wiki prove the negative; the land wasn't owned by a third party. Where registration of title is not required, the governmental registry could only attest to what has been registered.
A private transfer might very well exist that invalidates the understanding of the registry. Adam stradling bitcoin wiki both of the above cases, the negative can adam stradling bitcoin wiki proven within a adam stradling bitcoin wiki. With Mastercoin the case is very strong. With a land registry, it is limited to the context of the Registry, which may be open to challenge.
In Factom, there is a hierarchy of data categorization. Factom only records Entries in Chains; the various user-defined Chains have no dependencies that Factom enforces at the protocol level. This differs from Bitcoin, where every transaction is potentially a double-spend, and so it must be validated. By organizing Entries into Chains, Factom allows Applications to have smaller search spaces than if all Factom data were combined together into one ledger. If Factom were adam stradling bitcoin wiki be used to manage land transfers, an Application using a Chain to record such registries could safely ignore Entries in the other Chains, such as those used to maintain security camera logs.
Were a governmental court ruling to change a land registration, the relevant Chain would be updated to reflect the ruling. The history would not be lost, and where such changes adam stradling bitcoin wiki actually invalid from a legal or other perspective, the record cannot be altered to adam stradling bitcoin wiki the order of events in Factom.
Nick Szabo has written about Property Clubs, which have many overlaps with this system. While thugs can still take physical property by adam stradling bitcoin wiki, the continued existence of correct ownership records will remain a thorn in the side of usurping claimants.
Adam stradling bitcoin wiki in a Chain that do not follow the rules can be disregarded by the Application. Users can use any set of rules for their Chains, and any convention to communicate adam stradling bitcoin wiki rules to the users of their Chains. The first Entry in a Chain can hold a set of rules, a hash of an audit program, etc. These rules then can be understood by Applications running against Factom to ignore invalid Entries client-side. An enforced sequence can be specified.
Entries that do not meet the requirements of the specified enforced sequence will be rejected. However, Entries that might be rejected by the rules or the audit program will still be recorded. Users of such chains will need to run the audit program to validate a chain sequence of this type.
