some ourselves. We’ve sold about 3.7 million of these things so far. Unlike Bitcoin, we didn’t do a half-life. Every year, the amount we sell increases by a percentage, though that inflation rate decreases over time.
X: How do you get to become a server?
PK: The people who run the fastest, most honest servers get voted in. The voting is done by the users of Factom—the banks, the title companies, and everyone who is using the system. They say, David is running a really clean server, let’s vote for him.
X: How does voting work? Do some clients get more votes than others?
PK: Every time someone publishes data in Factom’s system, they have to spend a tiny thing called an entry credit. One entry credit equals one entry into the system. One thousand entry credits equals 1,000 entries into the system. The entry credits you bought get you the vote.
X: OK, so how do you buy an entry credit?
PK: You can buy entry credits from anyone who has a Factoid. Let’s say there’s 1 million Factoids in the world. Let’s say someone wants to buy 1,000 entry credits, so they cash in a Factoid for 1,000 entry credits. That Factoid gets removed so there are 999,999 factoids remaining. The more entry credits get used, the fewer Factoids there are. Factoids can then go up in value, and down in value. Because they’re getting used up over time, there’s a direct relationship between the value of entry credits and the number of Factoids.
X: So both the Factoids and the entry credits are like a currency?
PK: What is really cool is an entry credit is nontransferable. It’s purely a software license. I can’t sell it to you, I can’t trade it to you. Once you have an entry credit, you’re stuck with them. You never have to touch Bitcoins, you never have to touch Factoids, you never have to touch cryptocurrency. It turns out that is a big deal.
X: Why?
PK: Every lawyer in the world is saying do not touch those currencies—Bitcoins or Dogecoins. The big institutions don’t want to hold Bitcoins.
X: Haven’t some financial institutions invested in Bitcoin-related companies, such as Circle or Coinbase?
PK: True. BBVA and USAA invested in Coinbase and Goldman Sachs invested in Circle, but these were equity investments in Bitcoin companies, not the coins. These Bitcoin companies are standard C-Corporations and pretty vanilla investment vehicles. As far as I know there are no major financial institutions that have purchased a large amount of Bitcoins or any other cryptocurrency.
X: Why, because the price volatility could make you lose money?
PK: You could lose money, you could get sued, the government could decide that you’re doing money laundering—it’s a money transmission without a license. This blockchain stuff is cool tech. This is one of the limitations of adoption: They’re looking at this world and saying, stay away. What the entry credit does is says this is purely a software license.
X: So how do you make money then? If I have a bunch of Factoids and sell them, do you take a commission?
PK: Factoids convert into entry credits cleanly. However, we’ll create a store front and we’ll probably take a small commission on those. That storefront also lets us sell other tools on top of Factom. I imagine that there’s a lot of tools that a title records company will need that a financial app will need also.
X: What kind of tools?
PK: A really simple one is identity management. How do I know that you are you? My title record might want to know who customers are, who an attorney is. Identity management is a really simple tool that I can build on top of Factom and sell to other people.
X: So you sell a subscription?
PK: Yeah, we get to be blockchain as a service. We sell them tools and consulting. I get to sell those tools at the value they create. It’s not cost plus sales. It’s that I’m solving this pain point for a bank. How much value is there in that?
X: The more tools that are created, the better it is for you, it seems.
PK: Factom thrives when 1,000 businesses get built on top of it. For the guy who holds Factoids, the more cool stuff that gets built on top of it, the more entry credits get sold, the more your token tracks to that value. For the guy who is building the business, he’s got a great customer and he understands that subject and he gets to collect money. For us, we say, in order to do that, we’re going to sell you this set of tools and it’s going to make it easier to do what you want. What I love about the model is that it gets everyone’s incentives lined up. That’s the ethos of open source: more smart people working on a project makes it better.
X: You said you’ve sold 3.7 million Factoids already?
PK: We had some people pre-buy these tokens from us. The Decentralized Applications [Dapps] fund is the first VC fund to be exclusively token-based. They did a syndication round and that raised us the initial funds to get us live. We’re selling tokens to the crowd right now. We’ve sold about 3.7 million of them, which translates to about half a million dollars. The Dapps fund and syndication partners bought about $750,000 of tokens. The tokens they receive are determined later. That’s all for the foundation, the open-source technology behind Factom.
X: Are you raising more for building the subscription service?
PK: For the company that’s built on top of it, we’re doing a seed round right now.
X: Are you finding much interest in blockchain?
PK: Every major institution I’ve talked to—the big consulting groups, big banks, big insurance companies, governments—most have a blockchain working group, trying to figure out what to do here. When I see that, it reminds me of 1994: Every company had an Internet working group. It tells me two things: 1. It matters. 2. It’s coming.
