Factom Software Tokens

Factom Software Tokens

By Crystal Wiese – Director of Marketing

We get a lot of questions about the use of Factoids vs Entry Credits. Below you will find the basic FAQ's regarding this critical design to the infrastructure of the Factom Network. 

What are Factoids?

Factoids (FCT) are the Factom token, or a tradable right to obligate the Factom protocol. The original supply of Factoids was set by the software token sale. Once the full Factom protocol is running, Factoids will be issued at a fixed rate to the servers that run the protocol. For now, until the protocol is completely deployed, no new Factoids will be issued.

To use the Factom protocol, Factoids are converted to Entry Credits (EC).  ECs are used to make entries into the Factom Blockchain. Once a Factoid is used, the right is gone. The right to write into the Factom protocol is generated by those parties running it. This right is ended by those using the protocol. The idea is to align incentives so that those that run the protocol are rewarded if (and only if) the protocol is valuable.

Why does Factom need a token?

Decentralized systems need a reward mechanism to incentivize participants. Having a closed system requires cooperation, and builds the long term network value creation. The overarching goal is to move transactions off the Bitcoin blockchain. Requiring Bitcoin transactions defeats this goal. The token creates artificial scarcity to reduce spam.

I bought Factoids, now what?

Factoids become usable and tradable software tokens with the release of the beta Factom client. Factom network will begin rewarding the Federated Servers after milestone 3 is complete and all 32 Federated Servers have been elected. Each customer will have a Factom wallet and can use their Factoids to buy Entry Credits or send them to fellow Factom customers.

Where can I purchase Factoids?

Factoids are currently available at the following exchanges:

Many exchanges have expressed an interest in making Factoids tradable on their platform, so stay tuned for more partnership announcements. Exchanges are subject to change and this is in no way an endorsement towards any exchange in particular by Factom.

Entry Credits

What are Entry Credits?

Entry Credits (EC) are non-transferable credits that are purchased to write fixed amounts of data in the Factom network. Once they are used, they are burned, not recycled. Once an EC is used, it is destroyed, and no longer usable to write into the protocol.

How do you get Entry Credits?

Option #1) Factoids can be converted to Entry Credits at a variable exchange rate set by the Federated Servers.  Read how to convert Factoids to Entry Credits.

Option #2) Purchase Entry Credits directly here.

How do the price of Entry Credits and Factoids relate?
The amount of Factoids varies since the price of Entry Credits per Factoid varies. The Factoid paid out is calculated by dividing the total number of Factoids in the protocol by the number of outstanding Entry Credits. The number of Factoids in the protocol and the number of outstanding Entry Credits are all computable from the Entry Chain and the Factoid Chain.

Why do you have a two step payment process?

Factoids are converted to Entry Credits at a variable exchange rate set by the Federated Servers.  Entry Credits purchase fixed amounts of data in Factom.

Entry Credits are not transferable, and can be treated as a product instead of a currency.  This is great for institutions who shun cryptocurrency. Cost to use the system is based on usage, independent of Factoid exchange rate. It is used in the voting system. People who use the system have a say in how it is run, not currency holders or people who burn electricity. The value of Entry Credits as a hacking target is greatly diminished since Entry Credits are not transferable.

How can this system be stable with infinite inflation?

Unlike Bitcoin, there is a source and a sink. The usage fees are burned, and are not captured by the Federated Servers. The Federated Servers collectively set the cost paid per entry. They can raise or lower it based on the Factoid/USD rate, so that each KiB costs a specific dollar amount.  Their goal is to remove Factoids from the market, so the fixed payout of Factoids they earn per period increase in value. The quantity removed from the market is price times quantity. They must find a price which is high enough to burn as many Factoids, without lowering quantity too much. There will be a negative feedback loop. High Factoid prices mean few Factoids are burned, and supply increases. Low Factoid prices mean that tons are swept from the market if usage stays constant. Given a constant usage, the Factoids will settle at a constant price.  Settling price for Factoids will be directly proportional to usage.