Interview w/David Johnston – Chairman of Factom Inc

https://www.youtube.com/watch?v=kUmYI7A5Pzg

Tai Zen: Anything related to price speculation.

David Johnston: Okay. We’ll talk about all the business stuff.

Tai Zen: Okay. Just leave it up to the oracles of cryptocurrency.

David Johnston: Looks like we’re alive.

Leon Fu: All right, we’re alive.

Tai Zen: Okay. So let me double-check here

Just give me a couple of minutes to do the intro and then we’ll get the party started.

All right. Can you hear me, guys? Please let me know.

Could you say hello over there, Leon and David? They are broadcasting from the Factom headquarter so that we can make sure the audience can hear us.

Leon Fu: Hey guys, this is Leon and this is David. We are at the Factom office here in Austin, Texas.

David Johnston: Hi guys.

Tai Zen: Hi. Sorry about the broadcast mishap. For some reasons, there was no start broadcast button on either side of us. We could not figure it out, so we just had to create a new youtube live stream video for you.

I could talk to Leon and David from the factom headquarters, but we will be able to broadcast what we were discussing out to the public. I’m glad that you can hear it.

We’re going to go ahead and start this broadcast here.

Let me just introduce everyone. First of all, you know we got the honorable grandmaster LeonFu.com, the great oracle of Cryptocurrency, the Oracle of Austin. I’ve made a ton of money just by listening to this guy and investing in different cryptocurrencies.

Next, to the honorable grandmaster LeonFu.com, we have David Johnson. David Johnson is the chairman of Factom, Inc.

In case you don’t know, Factom is the cryptocurrency. Then, we have Factom, Inc., which is the company that does the software development for Factom which is open-source public software.

David Johnson is their chairman of Factom, Inc. He’s in charge of the public communicating about them… How is a legal way to say this David?

David Johnston: I work with investors that want to get involved in Factom, Inc. and just help to educate them of what capabilities are and the cool use cases that companies are starting to use Factom. Basically, I do essentially investor relations.

Tai Zen: That’s the one I was looking for it. I was stuck in my head.

Now on this broadcast, we have to let you know something that is a little bit different from the previous broadcast involved in cryptocurrency.

The reason is Factom, Inc. are getting money and funds from the public, from investors that want to invest in Factom. Inc. and stuff like that.

We have to be careful because there are certain legal reasons in the United States of America here. There are certain legal questions regarding Factom, Inc. that we cannot ask David.

For example, anything that has to do with the price of the Factoids being traded in Poloniex or any exchange. He cannot discuss that because in the US there’s certain SCC regulation and laws that prevent people who are in charge of investor relations from soliciting funds publicly or anything like that.

What we’re going to discuss in this interview with David is the business side of Factom, Inc. and see what they do, the kind of customers they’re going after, what is the difference from other cryptocurrencies and things like that.

As far as the price of the factoids that are being traded, we’re going to avoid that. LeonFu.com and I will discuss that in a separate video without David being here because we don’t want him to get in trouble with the SCC in the United States.

In case you don’t know, the SCC is like the police that’s in charge of all companies are raising money publicly in America. We have to abide by their laws. Is that a little bit clearer right there?

David Johnston: Basically, we communicate directly with investors on a private basis. There are a lot of laws that the SCC has about publications. Therefore, we’re not looking for investors through this an avenue.

What will we do is happy to talk generally about the technology and other use cases for the company to educate about what we did. I’m happy to be here and happy to sort of talk about what we do.

Tai Zen: The reason why we have to mention that is there are certain questions about Factom that you will want us to ask and we’re not going to ask him because we already know in advance that that’s going to violate certain SCC law.

Let’s start with the business from my understanding, David.

The business of Factom, Inc. is to record public data or important data that the public does not want to be erased. You have the software technology to record that data into the Bitcoin blockchain, which is once it’s recorded on there, it cannot be erased. That’s the easiest way to explain it.

Today, I saw on your website that you just partnered up with a company that will record all the stock market prices into the bitcoin blockchain. Is that corrected?

David Johnston: To clarify that a little bit, this is actually a partnership that we’ve had ongoing for a number of months. If folks have looked at our public usage chart, which lists all the different Factom chains, and seen the one that says Intrinio, this is actively being published to the Factom network.

The cool thing is this is a resource not available in the future. It’s available today. What we’ve been doing with Intrinio specifically is the Russell 3000 index. These are the 3000 most valuable stocks to the United States. Apple, IBM, and all those folks are listed in the Russell 3000.

What we do is we take the API data from the Intrinsic and every 15 minutes, we publish the price of all 3000 stocks. Essentially, what this is giving developers is a tool where they can now build an application and they can go look at an immutable record of what that price was.

Leon Fu: They could always look up the price by going directly to Intrinio. The question is what you bring to the table after you write this blockchain out. Can you explain to our audience the advantages of that versus what developers were doing before?

David Johnston: One advantage of the factom is it’s always going to be there and it’s not a question of you having to store that information locally.

What people do today is if they have an application, they’re pulling that data in. Maybe they keep some of them and the others are kicked out of their system because they don’t want to store.

David Johnston: In the Factom, this is not being hashed. It’s literally the raw data.

Leon Fu: It’s not just a hash of the data. You’re actually incorporating the actual data in the blockchain, so it doesn’t just take up a lot of space.

David Johnston: Fortunately, this is a use case where it’s a very small footprint. If you think about how many characters or bytes involved in a stock price, it’s relatively small. Since Factom really allows you to take a large amount of data, of course getting included in the Factom layer and then anchored to the Bitcoin blockchain, you’re extending that immutability and security from Bitcoin to all of this data that we’re adding on top.

In most private use cases, you would want to hash or you would want to encrypt the information. However, since this is public data about public companies, which is generally useful to all sorts of the developers, we thought this is a good example of a useful public data set we can put directly into Factom, so the developers can use.

Firstly, you have a higher level of trust that the data’s not going to be altered.

Secondly, you don’t have to store it locally in order to reference it.

Thirdly, it’s verifiable, not just by you who have access to the API, but now it’s verifiable by anybody else who’s using your application. They don’t have to trust that you pulled the data correctly, varied somewhere in their code. They have a public reference that they can go and say:” Yeah, that’s exactly what it says.”

Leon Fu: Now Factom is paying for the servers that are hosting this?

David Johnston: This is an initiative by the Factom foundations. We have a general initiative that we call customize everything that I’ve been pushing for a while.

One of the things that have come out of that is the Factom Foundation has provided the Factoids in order to customize all of this data from Intrinio for the stock markets.

Here’s the fourth advantage. It’s not just Intrinio. We’re doing this with all sorts of data sets. If you saw our announcement last week with Yes Data, our partnership with them is the 3000 most valuable stocks in China.

These are sort of different data sets that typically you wouldn’t get from the same provider. Now we’re pulling them into the same place.

If you’re writing an application that needs to keep track of, let’s say global assets, instead of doing 2 integrations with different providers, you can do an integration with Factom for this auditing directly.

You can always go to the source if you need more fine-grained granularity or ultra real-time type of data.

We’re not trying to compete or replace the services, but we want them to be where the longterm records are captured and where the longterm historicals of application can be stored and referenced over time.

We’ll never have the room to put all the data the Internet provides and we’re not trying to do that. In fact, we want to point people to them now that we have this partnership to say:” Hey, you can see what they have here”.

However, over time, the goal is we’re going to be pulling API from tons of different providers and you end up with a single place that you can go for all sorts of financial data all over the world. Hopefully, the point we’re building is working.

Once you have 10, 20, 100 or 1000 of these different datasets, are you going to cobble that together yourself or are you just going to show that for the Factom almost free and basically grab that data that you need?

Leon Fu: Did it has something to do with sensor data because I remembered the press release said that?

David Johnston: Yeah. The press release covered the fact that this is an identity-related. For them, they want to prove that our records haven’t been altered.

I think what they said in the press release is we want to increase transparency and have the ability for better record keeping.

I think their main point is to show people that when it comes to the sensor data, everything hasn’t been a time burden. It’s all there and all the records are complete.

What they highlighted in their press release was really about using this for the Internet of things and using this for identity. I think it’s forward-thinking of them to get involved with a blockchain company like Factom.

The cool thing is it’s getting delivered. It’s happening and it’s not just a thought experiment.

Leon Fu: …Is this something that is ongoing? Is there any expectations that they will continue this contract in the future or is this something that is just like a onetime deal? Is that something you can answer?

David Johnston: I’ll answer it at a broad level. I expect we’ll continue to have a relationship with the Department of Homeland Security. I can’t announce any new contracts today. Keep abreast of the blog and you will see…

Leon Fu: But the intention is to develop this relationship, right?

David Johnston: I can say broadly that a project has come out of their Silicon Valley office. They opened the Silicon Valley office with a bit of fanfare. Recently, it started in sort of embracing innovation from Valley Factom. We have one of our sales offices in Silicon Valley in Sunnyvale that plug and play. That’s where the relationship came from.

I can say that the whole point is to take things from the pilot all the way to production and really embrace innovation.

Leon Fu: For this research project, it’s $199,000 contract. It’s more of like a proof of concept. Can you say or if it’s more of…?

David Johnston: It’s the first phase in that process they’ve created.

I can’t make any claims about future contracts that may or may not give us, but I can say it’s the first step. What they’re trying to do is embrace innovation and bring that in and access that. So stay tuned.

Leon Fu: There was one other contract that you had mentioned. It was a contract about China. Do you remember that?

David Johnston: Sure

Leon Fu: We’re all investors and speculators here. We saw the price react to that. Some of my friends were like: “Who the hell are these guys?”

David Johnston: We’ve announced a couple of partnerships so we can pull it up on the blog. There’s a few of them, but you’re probably thinking of the first one. …. I would best describe them as sort of the IBM of China. Obviously, it’s a little smaller than that, but it’s on that same vein of what they do, which is enterprise software solutions for large corporations.

Leon Fu: I tried to google them and I couldn’t find anything.

David Johnston: You might want to google their Chinese name instead of the American name. However, we can post some links regarding that.

I had a chance to visit they are headquartered in Beijing to meet their CTO. Their challenge is in China, there’s a mandate for smart city data in 2017. It means all the major cities have to go out and get smart city software that collects electricity consumption and so on.

There’s this mandate and I saw enterprise software company going to all the cities and promote their products.

The cool thing, I think this was well covered in the blog, is they realized with Factom, we can prove that the data collected by the local sensors, by the municipality hasn’t been alternatively changing when it gets reported up to Beijing.

You could almost think of it as compliance. They’re literally showing they’re complying with this mandate for next year when the smart city stuff all rolls out. Therefore, they went and signed the contracts.

They know what we’re providing is a means of proving that data and validating that data. Obviously, we can’t handle a pipeline of data that’s going to come off the sensory, but what you want to do is aggregate that and the timestamp at the chart so that you can do all of this proofs.

Leon Fu: Speaking of China, let’s say 2, 3, 4 or 5years from now, do you think the revenue for Factom, Inc. mostly come from China or from the United States.

Where are you focused on? Because I know you spend a lot of time over there, is this blockchain space going to be mainly in China and Asia or in the West?

David Johnston: That’s a good question. So far what we’ve seen is about half and a half between China and the rest of the world.

Leon Fu: half and half

Leon Fu:  Will that implies that the United States is less than China because China alone is half?

David Johnston: I can say we only have a few of our customers in the US. Our customers are from the US, EU, and other Asian countries, but China is a major player.

Leon Fu: In your opinion, why do you think they’re moving aggressively into this versus the rest of the world?

David Johnston: I really have to give an enormous amount of credit to Bo Shen, Vitalik, Dr. Feng Xiao and all the Forks behind Fenbushi capital, who’ve really built a real ecosystem in Shanghai.

I’ve ended up visiting China 5 times in the last 12 months. It’s mostly due to the hard work that they’ve done to really not just engage the community, but engage the larger business organization.

I went to the blockchain summit in Shanghai. It wasn’t exchanges, cryptocurrency traders. It was major banks, insurance companies, huge financial institutions learning about the blockchain and seriously looking at how they adopted it.

If you look what they accomplished with, you probably saw the announcement about the Chinese central bank starting to invite……so much education with these large institutions.

I think it’s that groundwork that they set and then they’re continuous sort of engagement of all those major institutions, which has really set an under the path where it’s moving a lot faster than what I see in the US or other places.

Leon Fu: Factom is about this reducing corruption.

David Johnston: This is the whole thing. It is often referred to as the trust crisis or the trust deficit where people are concerned about food safety, all sorts of things. Then, all of a sudden, if you can audit all of those processes, you don’t have to trust the other person. You can trust the math. That idea I think is really powerful and resonated.

Tai Zen: Just real quick guys. We’re just getting some feedback from the audience. I think there was some lag right when David said what the Chinese central banks were doing and people cannot hear it.

David Johnston: I was just saying that if you saw announcements from earlier this year, the Chinese central bank mentioned being open to proposals about blockchain. That really makes them the first major central bank that wants to apply technology in their service.

I was just giving credit to the folks from Fenbushi and Wang Chung labs for laying the groundwork there. I think they really did the hard work of education and lobbying to really get those institutions to understand blockchain.

Tai Zen: I have a question based on that. Every time any of these businesses record their data into the blockchain using Factom, what is the cost to do that and how often is it being done?

David Johnston: It really depends on the use case. Let me use an example that folks might have seen recently in the usage chart.

If you’ve looked at the usage chart recently, there’s a big spike from Ancun, which is a notarization service in China, that we announced a partnership with a while back. Then, they went through the integration process and started publishing encrypted hashes into the Factom network.

Therefore, in that case, we’re working directly with them to help them publish that data and use it for validating the documents that they’re notarizing. This is really cool because it sort of adds a whole nother level of dependability and confidence that you can check the math.

They’re a good example. They’ve been putting in 100,000 entries in the Factom network. That’s a good example of how somebody secures a large amount of data.

It’s helpful to understand that entries are not equal to records because an entry in Factom has about 1K of data so you can fit a bunch of hashes and into a single entry.

People often look at the 3,000,000 entries and they assume that’s the number of records…

Tai Zen: When you explain that the difference between the record and the entry, it cut out. You said that the entries were one kilobyte?

David Johnston: Yes. You can fit multiple records, multiple hashes into a single kilobyte. In fact, the hashes are usually 32 bytes so you can fit a lot of hashes into a single entry.

What I was just pointing out is there actually now about 55,000,000 records. I’m using the record as a term for the hashes because I don’t know what kind of record that hash represents. It could be a file. It could be a stock price. It could be whatever, but we have a little tool that adds them up. We’ll be releasing that fairly soon so people can see that.

Overall, there are about 55,000,000 records in the system.

Leon Fu: But you don’t know who these people are?

David Johnston: We know some of them. Some of the chains people label. They’ll add a little bit of metadata and say title chain or documents chain or whatever chain.

We can usually put the pieces together, especially if they put a URL. For example, we didn’t know what mood chain was, but it’s metadata we looked it up. There is a Chinese group doing a proof of existence on top of Factom, whom we had never met, but we’re glad to see that they were using Factom.

That’s the really cool thing about having an open-source project. People can use it without needing permission for profit. Plus, you get a lot more network effects in cool data sets that people are added.

Leon Fu: One thing that our viewers would be interested in. We know that Bank to the future that is fundraising part of your series A that’s already on the website. Bank to the future says it was 17% of the company, which is equal to $5,000,000.

I’ve been sending out tweets that imply a $30,000,000 valuation. If you take 17% of 5,000,000, that’s $30,000,000. I think our viewers would like to know what you are going to do with this money.

Specifically, how are you going to use these funds to expand the business? Could you go over some high-level strategy? As an effective investor, where do you see this company going with now that you have more capital?

David Johnston: Yeah, sure. I can talk in just a very high level saying that when we do fundraising, most of it goes towards engineers. Being a software development company means 2/3 of your cost goes towards engineers.

As we sign up these institutional customers, it’s really a matter of serving them with technical support and developing our core products. That’s really what it dominates the cost structure. It’s really about building the team.

We’ve said publicly that, which you can find on Factom page, we’ve got a team of fulltime folks involved in the company. That’s where most of our spend goes.

Leon Fu: You are going to increase headcount with this fund, then hire more developers to build out.

David Johnston: We are hiring. Send in your resumes and email us. We are looking for a variety of skills, frontend, backend. Infrastructural level developers is a lot of who we engaged.

Leon Fu: I guess that’s a good lead into the Milestone 2. There’s been a lot of talks publicly about that people are highly anticipated what Factom is able to do with Milestone 2 that they couldn’t do before when it gets released.

David Johnston: The best thing to understand is the Milestone structure was first set out when we did our the software sale in 2015. Basically, what we outline is we’re going to evolve this to be more and more decentralized over time.

The first milestone, we call Factom of Genesis version on the software, went live September 1st in 2015. We’re coming up on the one year anniversary of Factom being live.

A fairly straightforward implementation of Factom is there’d be one federated server. It’s implemented to Bitcoin blockchain. It can handle a few transactions per second.

The big jump with Milestone 2 is it moves to 8 federated servers and these are not all controlled by Factom, Inc. or the Factom foundation. We have a number of independent companies that have committed to running federated servers and reasonably spread out.

Leon Fu: What kind of companies would do this?

David Johnston: Folks centers in the blockchain space that have experience running servers and always keeping them off.

Leon Fu: Minors.

David Johnston: That might be the type of company and that might also be customers. People that use our software, put an entry themselves and want to be involved in the network. We’ll try to mix it up. We are looking at 2 in China, 2 in the US, 1 in Japan, 1 in India and 2 in Europe to have a really good broad base for the network. This really moves to a peer-to-peer network.

Leon Fu: Does that mean Factom is going to pick them.

David Johnston: That’s right. In Milestone 2, we will have 8 federated servers. Behind them, there will be 8 auditing servers. If any of that server goes down, the audit server takes it to place automatically.

If you look at the Milestone description that was published, I think it’s still floating around everywhere, Milestone 3 is where we get to elections. This is proved really difficult in the cryptocurrency space ……

Leon Fu: I think BitShares does that right? Kind of with a delegated proof of stake

David Johnston: They do the delegated proof of stake. There have been some challenges with that. Other people have tried different flavors.

For Factom, we wanted something was based on the real users, so we developed a delegated proof of usage. It’s actually the people that are making entries into the system, not people that are holding Factoids, that will have the voice to directly elect the federated servers.

Leon Fu: People using it are the ones that get to vote. It’s not like delegated proof of stake where you had to own the tokens.

David Johnston: Right. As a result, there’s not an attack factor where you could buy a majority of the tokens and all of a sudden the elect anyone you want. You actually have to spend the money to make the entries, then you get to vote.

Plus, you only get to go for a certain period of time. I believe what was proposed in the consensus paper is 6 months. Therefore, you just got aged voting. After 6 months after you voted, you’re not active use and you want to sort of get wait for when you’re active or a period of time after you were active.

We think that will align well. Ultimately, you can have large users and customers that want the system to keep functioning because they’re actively putting entries in the system. They ought to be the ones electing the server.

When you get to Milestone 3, you’re looking at 32 federated servers and 32 audit servers. That’s sort of the evolution. We’re getting more and more decentralized over time. We don’t want to control the network. We don’t want to be a bottleneck. We want this to be a fully decentralized system.

Leon Fu: A lot of our audiences, small investors, that trade on Poloniex have been complaining about a wallet. Can you speak more about it?

David Johnston: I can say that it’s coming to a wonderful, beautiful interface. Not from Factom, Inc. because we’re not necessarily interested in being a wallet company, but from a wallet that is available today and it’s a very nice interface.

We’re hoping to announce that in conjunction with around the time of Milestone 2. As the public lesson that rolls out and as we go into production, then you’ll see the announcement around the wallet integration. The reason it’s connected to Milestone 2 is in Milestone 2, you get a new capability called acknowledgments.

Today, Factom syncs with the 10-minute blocks of every 10 minutes, on the 10 minutes. That’s not even necessarily what a Bitcoin block happens, but we put in an anchor every 10 minutes. That’s when your factom entries happen.

When you get to the peer-to-peer network, you end up getting cryptographic seats, which we call acknowledgments from the federated server immediately after you put in the entry, so it’s around a second.

You’re moving from waiting a while to know if that information has gone into knowing very quickly. That makes it easy for wallet providers to show that transactions are happening because Factoids are a token that operates on top of Factom

Leon Fu: Don’t your customer need a wallet to hold an inventory of factoids? Don’t they need one?

David Johnston: Technically, not because the way we architected this with factoids converting into entry credits. All they need to be able to do is control the entry credit address and make an entry in the system. In some cases, depending on the piece of software they’re using, Factom is making that on their behalf. We’ve connected the API in a way where we manage the entry credits.

This is on purpose because we wanted to get away from everybody having to have a wallet. We wanted large banks not to have to ask their lawyer if they’re allowed to hold the cryptocurrency or software tokens or whatever gets framed as. T

herefore, we wanted to very clearly say you’re not going to touch the money. Entry credits are nontransferable once they go to a public address. That’s it. They’re stuck there.

Leon Fu: So Factom can do that on their behalf. They can’t convert them to extra credits. These are actually just credits and they can’t use them for anything else.

David Johnston: All it can do is make entries in an immutable database. By removing all that complexity for large companies, I can’t tell you how much that’s helped us get in these large customers because if they had to have a Bitcoin wallet or a different wallet, it adds a whole nother layer of complexity.

Therefore, if we can remove all that and just say: “you can make entries in the blockchain. You pay us this much. Everything is normal”, all of the complexities are gone.

Leon Fu: If you want to make credit, it’s a 10th of a cent. Fixed-rate. It doesn’t really matter what the Factoids are trading at. For them, it’s a 10th of a cent.

David Johnston: Right. That gives them confidence because they don’t know what the price of the tokens are, and they don’t want to know. That’s not their business. All they want to do is make an immutable address.

Tai Zen: Hey David, I want to get a use case example so that the audience understands more of what Factom does.

Sometimes, when we spoke about the stock prices and things like that, it may be unfamiliar with the common people that are looking at Factom.

I want to use this an example maybe you can help us out.

When we went to go to the Dallas County and we got a copy of his birth certificate, they charged us $25. It was just a piece of paper, but it costs $25 with the Dallas County clerk stamp.

Basically, they authenticated that the data that was on that birth certificate for my son. It was accurate and correct, so that’s why they charge us $25.

Let’s just say that the hospitals in Dallas County, instead of using the old record-keeping system, they use the Factom system to record that birth certificate into the blockchain. Therefore, in the future, when my son goes to school or work, they can pull it up and identify his birthday.

The question is how much it would cost the city of Dallas to record my son’s birth certificate into the blockchain if you were doing it.

David Johnston: The funny thing is I actually did this. I took my daughter’s birth certificate and put it in the Factom system as a hash of the photo. It cost me about 10th of a penny per record.

I mean it’s a fairly straightforward use case. It’s probably something they could hire a developer to do directly on the Factom because our focus is really on use cases such as auditing and compliance where people are spending enormous sums of money to make sure financial records are correct. That’s really where we’ve ended up focused for profit.

However, the cool thing is it is an open-source project. They could go on there and use the API and they can add that record with 10th of a penny.

It’s important to distinguish that hash is the verification, but it’s not the storage of the raw record itself. Consequently, we still need to keep a copy of the digital record and that’s a fairly solved problem. We’re not going to reinvent AWS, Iron Mountain or whatever for long-term storage of raw documents.

Now, they can get rid of the physical copy. The reason people still keep pieces of paper in the 21st century is atoms are hard to change, but in the blockchain, bits were easy to change.

Leon Fu: That’s right

David Johnston: Even if you had a totally digital system, you still had to print out a copy of that title, a copy of that record, and put it in the background in case something gets altered on the digital system, so you have a source to come back to.

Now, you don’t need that paper to go back to. Now you can have a digital copy in the background.

Tai Zen: How many of those records will fit into an entry?

David Johnston: Yeah, you just divide 1K by 32 bytes. That is the number of hashes that you can put it in there. It’s 20 or 30, depending on how you’re organizing them if you include any metadata or things like that. However, you could probably spend less than 10th of a penny to secure a bunch of records.

Leon Fu: I think you had mentioned something about mortgages too. I mean, that’s a potential use case if factom gets incorporated. You could actually assist with reducing the cost of doing that.

David Johnston: Sure. That’s a good example. There are so many examples of record keeping use cases.

In case of birth certificate, which is not a lot of volumes, I mean if I’m doing it personally, obviously there’s a lot more if you’re the county of Dallas. However, it’s still not millions or billions because the number of people born in Dallas County every yea is probably in the thousands or tens of thousands.

Where this really shines as a use case is where a company has a large number of entry. You talked to the folks at Ancun for example. They’ve said it’s millions of documents. They notarize something like 100,000,000 documents a year. That’s an example where it would be really expensive to put that directly into the bitcoin blockchain, but it’s really effective to use Factom for.

Any use case where there’s a lot of records involved, these financial assets are in a thousand pages, all the compliance related to it and all the auditing records are where this is really most compelling.

Tai Zen: On the Internet, from a business perspective, David, I see that your chief marketing officer, Tiana is all over the place to talk about Factom stuff.

Do you have a sales team that runs out and contact these different businesses to get them as customers to use Factom? Do you have your own sales team or it’s just Tiana doing all the marketing?

David Johnston: This’s a great question.

Tiana is one of the co-founders. She has been with the company since the beginning. She’s been great about getting coverage and really teaching people what Factom is all about. She’s led the opening of our California office. You’ve probably seen her speak in a lot of conferences and do a lot of interviews.

However, a lot of the sales staff is led by Peter and Abi. Peter works really closely with our sales team and talks directly with customers. If you see on the website, Abi Depaul is our VP of business development. He also meets with a lot of customers.

We’ve been adding a few members to the sales team, so we’ve got a growing sales team that meets directly with the enterprise customers.

You really have to have that kind of touch to develop these relationships because these big companies are to figure out exactly what solution they need. You really have to develop a relationship and do meetings directly with these folks.

Basically, we have a sales team that does a lot of traveling and goes all over the world and meets with the customers.

Tai Zen: Actually, one of the things that got me interested in Factom is that you were one of the first cryptocurrency companies or businesses that actually have a chief marketing officer. You actually had sales and marketing-driven and we saw more of you through pitching and introducing your software to people.

In my opinion, in order for our businesses success, they have to have a strong marketing and sales team. That’s what it brings in the money into the business. Because without money coming in, you are not going to be able to survive for very long. That was one of the main reasons we looked at.

I mean you can do that with your developers and stuff, but to the outside world, you need to have a strong sales and marketing team to get customers. Otherwise, no one’s going to use the software.

That’s the problem that a lot of these cryptocurrency projects have, which they focus on the technical stuff and they believe that there are programmers, technical gurus or whatever to attract people to use their software.

David Johnston: That’s a good point. We are trying to balance between the technical and business sides. Even though you have a good team of developers, you have to have people that can articulate our products such as why people would use it; who would use it and why it’s different from what’s out there today.

It’s been really rewarding. I’ve been in this field, entrepreneur, for 15 years and gone through a number of companies. Sometimes, you are really tech-heavy, but nobody out there that can really articulate it. Then, sometimes you’ve got a lot of marketing business people, but no one can really back them up with the technical development.

Therefore, it’s been really refreshing to have a good balance of that in Factom where there’s a strong technical depth, but there’s also a strong sales and marketing.

I was watching one of your earlier videos and I really appreciated that you understood sort of the business viewpoint that we have.

In fact, you made a point about we’re anchoring into multiple blockchains. This doesn’t sort of tribalism where there is the one and only true bitcoin. We understand that and we need to have a practical outlook.

We’re going to work with Ethereum and Bitcoin. We’re going to work with multiple blockchains to secure all this data because these big banks always have that skeptical like: “What if Bitcoin goes away?”. Not a problem.

If you like Ethereum, we’ll put anchors there. If you’ll like Ripple, we’ll put anchors there. If you’ve got a private bank chain, we’ll add the same, same anchor there.

What you end up with is this really redundant system where you have to be making some arguments like: “Is the Internet is going to go away? That’s just a scenario to show how people are skeptical about the blockchain.

Therefore, our solution is you’re going to put this in a bunch of places and whatever happens with the blockchain, there’s always going to be a copy of this information that you can validate. That had to address their real concerns.

Leon Fu: Are we getting closer to the release date from Milestone 2?

David Johnston: We are definitely getting closer. The team hasn’t put out an official date, but for those that have been following it on GitHub, they can see how close it is.

We hope to be making an announcement soon about the release date and the public test and stuff like that, but nothing to announce today. We’re really big believers in testing.

We have 2 full-time quality assurance experts that have done this for years and years on staff at our headquarters and nothing gets shipped. When it’s gone through QA, we try to remind people that this isn’t a facebook app, photo sharing, or chat app. We treat this as financial software.

Therefore, we’re really sensitive to only putting out stuff that has been robustly tested. Robert, who’s are listed on our website, is the head of QA. he has literally hundreds of scripts that he runs every day against the Factom network, against the new software developing to check that every potential edge cases could happen.

Our goal is not to be rushing. Our goal is to get it right and not to have attack vectors or things we haven’t thought through or things like that. I really give a lot of credit to Brian Deery, the whole QA and code team that really robustly test this stuff.

I’ll just say that anybody that looks at our GitHub can see how many commits are constantly going in. These guys at this point are putting in every weekend.

Leon Fu: One of the things is there’s the factom nonprofit and the Factom, Inc. for profit. Are Brian, Paul, and the others part of the Factom foundation or are they working for a Factom inc? Is there a separation between the two or is it really just one and the same?

David Johnston: There is a separation. Paul, I and Peter sit on the board of directors for the Factom Foundation, which for anybody that might be interested in actually based in London. We’ve got a very friendly reception there with the sort of welcome nonprofit foundation to do with.

Leon Fu: The funding comes from the crowd sale, Factom ICO, is that…?

David Johnston: I remind people that from the software sale, it’s actually based on the Milestones. Only when we ship code by completing the Milestone, any of the money from the software will get unlocked.

September of last year, we had locked Milestone 1. When we delivery Milestone 2, we’ll unlock that portion. That’s all held in a multi-signature escrow with independent technical auditors that say whether we’ve met those milestones are not.

Leon Fu: Milestone 2 is actually being done by the foundation, not by Factom inc.

David Johnston: The best way to describe it is the Mozilla Foundation. For those that are familiar, Mozilla Firefox is both a nonprofit and for profit. They have different entities that work together.

The foundation for us really focuses on the open-source and all of that funding from the software sale goes to developing the open-source and supporting developers and all the things to do with the open-source network. The for-profit is really about serving those enterprise customers.

We find that that’s a really good balance to answer your question on the core developers. It depends on where the funding is coming from.

Basically, the foundation is providing resources for the development of the open-source and sometimes that means developers are being provided by Factom, Inc. on behalf of the foundation. Since the foundation can’t afford to hire such a team, Factom for profit is basically donating these open-source resources.

Leon Fu: The part of the financing that you’ve been at your next round is going to be “a donation” to the Factom foundation because you actually need them to deliver Milestone 2 for you to be able to get customers.

David Johnston: It’s a minority of the funding. We’ve got 3 or 4 folks that focus on the open-source and the rest of the technical team is really focused on customer support and developing the core products.

It’s not a big chunk, but we’ll definitely continue to support the open-source. That’s something that we really believe in. It also gives us an edge in the market.

Anybody can build on factom, but you might want to hire the guys that built the system and know the platform well.

Leon Fu: Yeah, basically they’re legal. They may be 2 separate entities but in fact, it’s the same people in both. It’s the same people that are working…

David Johnston: It’s not one for one, but there’s definitely a crossover. That’s what you want is you want people to be aligned between the different entities.

Leon Fu: But if it’s the same people, why do we need 2 entities? Why do we need a foundation and a for-profit? Why can’t they just do one and the same if it’s the same people?

David Johnston: It really boils down to a difference between equity and tokens. Tokens are really well held by a foundation. Forming the foundation and creating an entity could create the initial open-source and released tokens to the community that was sold in the software sale. That was a good vehicle for that. Whereas the for-profit didn’t get any tokens as part of the initial genesis block, it’s purely…

You see this model a lot. If you look at the Ethereum Foundation, they chose a nonprofit and there’s a reason they did it. If you look at the Omi Foundation, it was a nonprofit

Leon Fu: but they didn’t have separation like you

David Johnston: I’m sure they do. Well, think about. You have the foundation and then you have for-profit companies like consensus

Leon Fu: but they broke off they?

David Johnston: but they have people come and evolve in …..

Leon Fu: well, so a lot of them, but they……

David Johnston: You’ve got this hybrid model where it’s an open-source foundation and then you have a for-profit or many for-profits that people are building on top of the network.

Now there are lots of for-profits building on top of Ethereum.

Leon Fu: That’s correct.

David Johnston: That’s what we want in Factom. There are plenty of for-profit companies now putting entries in Factom. Maybe it’s not their core business, but it’s now part of the product that they offer or the services that they do.

When a thousand businesses flourish on Factom, everybody wins. We’re not trying to capture 90% of the market. We would be happy just to sort of serve the most valuable use cases that we think are the biggest pain points.

You can think of Google model that they’ve done with their APP store. Google doesn’t make all the apps and the APP store. Of course, there is a huge army of developers that are putting them out, but they put out some of the most valuable applications, maps, g-mail, server applications – core applications.

But they’ve got an open platform with lots of people can participate. That’s the inspiration that we’re really trying to have.

Leon Fu: You want to build a platform that others can build off of it.

David Johnston: Exactly.

Tai Zen: What competitors do you guys have now in the record-keeping and the data entry? Any other cryptocurrency blockchain out there that’s competing with you or even come close?

David Johnston: I don’t know about decentralized systems that are really focused on that. What I try to emphasize to people is you have to understand that Factom is not an interpretive layer like Ethereum, which is interpreting the code that’s getting executed.

Factom is just a blank piece of paper. You can publish any data you want on it. The protocol doesn’t try to validate that data. You can put whatever you want into the layer. We think that’s the right approach because we want people to interpret the data at the application layer, instead of at the protocol layer.

I really haven’t seen many projects sort of taking that approach. Most people are sort of trying to bake in different features or different functionalities into their core protocol.

Factom is really focused simply on publishing the data, creating this chain architecture where you can create as many Factom sub-chains you need, easy scalability to just validate your data instead of having to download everything.

As far as companies go, there are plenty of people that are doing a proof of existence, proveofexistence.com, Stampery. However, I find a lot of them are really focused on the consumer. They want to serve the individual that is documented something that’s low volume. Whereas, Factom really ended up focusing mostly on enterprise customers and people that have these huge use cases.

I think that’s pretty much what’s differentiating us and why we use this Merkle tree structure to aggregate all of the entries so that it doesn’t end up as a bitcoin entry.

Tai Zen: Is it safe to say that’s you never focused on a consumer or end-user wallet, service or a client because you were more focused on businesses and enterprise-level folks as your customers.

David Johnston: Yeah. We really want to focus on the enterprise folks. That’s part of why we haven’t put a lot of energy into consumer’s stuff because it’s not our audience. If somebody wants to make a couple of entries, we have tools that support that, but let other people focus on that.

The pain point that we saw is we talked to big banks and we’re serious about using the blockchain. They looked at us and said they needed to put about a billion entries a day for this one use case. Then, we have to explain to them that the blockchain is an architecture with Bitcoin. They can handle 7 transactions a second. It’s not going to handle a billion entries

Therefore, we built the Factom to address that problem and said:” Here’s a system you probably don’t need to put it into a billion entries. You can aggregate them together in this structure and you can put it in every second or whatever. You can efficiently anchor all of that data to the blockchain without shoehorning it into an anchor.

That’s really a key to understand because this is why most of the industry is stuck in proof of concepts. When you only can move at the speed of the Bitcoin blockchain, all you can do as a proof of concept. If you run that out for a day bitcoin, it can handle a couple of hundred thousand transactions per day.

Therefore, any use case, which would require even just millions of entries, is a nonstarter. When they get into the technical diligence, they’re like:” Oh, it can’t handle that.”

The cool thing with Factom is we’re getting real-world applications for production systems because there’s now an effectively much higher threshold for how much data you can secure with the blockchain.

Leon Fu: For example, if I want to use Factoids as a currency, could you do visa level number of transactions on the blockchain? I know the factoids weren’t designed to do that, but let’s say everyone started to use factoids to buy coffee.

David Johnston: I hope they don’t. I mean we’re not trying to be all things

Leon Fu: I understand but…

Tai Zen: You won’t be in business long when people use Factoids to buy a coffee at Starbucks. You are not going to be in business long.

David Johnston: That’s not our purpose, but to answer your question, we could support the massive scale of data usage on something like visa network.

Especially, as we get into Milestone 2, we have a more robust federated network globally of all these different notes and audit servers. You can really start to entertain that.

However, at some point, there’s a threshold where it doesn’t make sense to necessarily publish everything to the public network.

I think people get very emotional and tribalistic about public versus private blockchains. I think it’s going to be both because if you look at the Internet today, not everything’s on the public internet. There’s space for internets, there’s space for private clouds, there’s space for sort of everything between the public cloud, the private cloud and hardware you run yourself. It all depends on your use case.

If somebody has a trillion entries, Factom can’t handle that volume, which you need to be doing is essentially using an instance of Factom to aggregate that together and then publish to the public network at a certain grant or lower permission.

Leon Fu: Can you talk about the immediate value to businesses? Are there certain industry groups that your sales and marketing team are focused on over others?

Tai Zen: For example, if you could just get 3 industries or businesses to use Factom, what would it be?

David Johnston: That’s a good question.

To answer the question, I think the immediate real-world value to their business has a lot to do with reducing auditing costs. I would say the target industries are the audit and costs have gone through the roof.

For example, since the financial crisis, if you look at what Japanese banks are paying for auditing, some of them are reporting a tripling in cost for their auditing. That’s a really big pain point. We’re talking about billions and billions of dollars in auditing costs annually, not to say new laws and regulations that have come into effect just increase that evermore.

Leon Fu: so financials is a big one.

David Johnston: Yeah, financial is a big one because they’re not going to be able to keep up with this. There’s still very much a manual approach looking at pieces of paper and checking the numbers. Then, all of a sudden, you could speed that up to the speed of checking something on software.

I think we have another question as well.

David Johnston: The question is about core titles and government, DMV and all that kind of stuff.

This can definitely be a way to speed up a lot of those systems because the if you look at the systems of record that a government use, every different department keeps in its own system of record. Paul Snow has talked about this a lot. At the federal level, it’s something like 53 different systems of record.

Therefore, if you need to make a decision about whether somebody is qualified to have this license or that license, they’ve got to go and check 53 databases. However, if anyone of them happens to be down, they can’t make a determination right now. They’ll have to delay it for 24 hours, 1 one week or whatever is.

Leon Fu: I think the government is a big part because they keep lots of records. Therefore, financials and government are the two major areas that your sales teams focus on. I think that’s fair to say.

David Johnston: Yeah. That’s fair to say. We’ve announced a lot of that because that’s a use case where Factom solves the system of record problems.

There is also a lack of trust there, even outside of the US. There’s a lot of lack of trust in the developing world around land titles and things like that because the systems that keep the records just aren’t that great.

I think you highlighted this yourself, Tai when we were discussing what happened in Vietnam. The government came in and said: “ It’s all public lands. Sorry”. Then, they came back later and said:” Well, that didn’t work out so well. Let’s give everybody their private property back, but who do we give it to.”

The reason is the records didn’t have really good quality. If the records were lost or nothing was getting updated during this period, you had a lot of confusion over who owned what. As a result, we were sort of take it for granted in the first world that that’s a solved problem. That is not a solved problem in a lot of the world.

I would say that is the tough thing. People have to understand that those projects take a lot of time and they can only move as fast as the government involved.

For example, we usually expect weekly updates in the crypto space. Those are multi-year projects. That is like a really heavy lift.

That’s been moving forward, but it’s 9 parts political and it’s 1 part technical to get all the proper authorizations and go through the review process. In some cases, it depends on the country whose legislative acts state have to be passed or detailed reviews for new contracts.

That’s been a learning experience for us and a part of why we’ve shifted focus from land titles as sort of a core primary focus because we realized how long projects are. There’ll be wonderful once they’re finally implemented, but it might take 5 or 10 years to see some of those government projects get implemented.

Hopefully, it’s driven by them rather than us because we know that they’re asking for this solution and they’re seeking out this solution. They’re pushing it because if you’re trying to push it, it’s just a really time-consuming process. It’s good to understand expectations.

As a for-profit, we want to focus on the areas where there’s more immediate traction, but the cool thing is its open-source at the bottom. Nothing prevents anybody else from coming in. We’re not a bottleneck in that process. We’ll put out tools. We’ll put out code, which will encourage a lot of people to do that, even if it’s not part of our core business.

Leon Fu: All right Tai, I think…

Tai Zen: No, that’s all the questions I have regarding the business side of it.

I still like the idea that out of all the cryptocurrencies, Factom is the only one that has an actual sales team and marketing team, and paying customers. That’s the most important thing. Nothing kills a business faster than having no paying customers. Free customers do not help a business survive.

If you have any questions, just type it in what city you’re in and the question. I’ll get them answered. If not, then we’ll wrap it up.

It seems like we have the one thing that was not very clear. There was a lot of questions about the date of Milestone 2. It seems to me that at this moment, they don’t have an exact date yet. However, do you have a timeline towards the end of the year or early next year that you are going to complete Milestone 2?

David Johnston: I’ll just say that our real emphasis is rather than announcing the dates or setting expectations, we want to get the code right and we want it to be really, robust when it goes out.

After every line of code is passed quality assurance, I’ll give a little context. It is close enough that we’re running a test net right now. It is an operational 2-day feature complete on a test in our own QA. The next step is a public testament.

As soon as we feel a certain level of stability, we’ll invite the community in to run your own node, join the test net, hit it with a lot of entries, run it through its paces, and then we go to….

Leon Fu: When the public test net gets launched, we know we’re getting closer.

David Johnston: Sure. When you have public testing that you basically have a release candidate.

Leon Fu: Yeah, that’s right.

David Johnston: At that time, we usually think this is feature complete, but let’s test the heck out of it before we go to production.

For those have seen the releases of Bitcoin, they kind of know that progression between the codes is done; the codes in test net; the codes in the public test net. Now, this version that’s released candidate is anointed, the final production one.

As soon as we have something to announce on, we’ll start inviting. We have a lot of testers that are on our skype channel or follow the project. Every time we release something new, they’ve been great about helping us test that. Therefore, we’ll definitely include the community in that process as soon as we announced the test.

Tai Zen: One last question from the audience, then we can wrap it up, David.

We have Shaka Daniel from the youtube channel Chase That Coin. He’s broadcasting from out of New York City.

He asked:” When someone creates an entry into the Factom the network, is it something that they can do with one Factoid or every entry has to be 1 factoid?”

For example, Bitcoin can be split up into 100,000,000 Satoshi. How does that work with the Factom?

David Johnston: Oh, great question. We actually call them Factoshi and they are 8 decimal points. You can break them into lots of tiny pieces for convenience, but it’s important to note that the conversion rate is set by the network, especially as we get to Milestone 3. This is sort of dynamically set by the federated servers. But today, it’s roughly a 10th of a penny.

If you look at the price of a Factoid, and this could be adjusted periodically, when it was $1 a Factoid, you get about 1000 entry credits per factoid.

Leon Fu: Now you get 3000.

David Johnston: Now I don’t know if that network has been updated, but the conversion rate will rise, depending on the exchange rate.

To sum up, you can make a lot of entries for a single factoid, depending on what the price of the Factoid is. The reason is, again, we wanted to separate the token that is traded at whatever value it is today with this entry credits.

For companies for practical business use, they just want to know how many entries they can make. They probably keep factoids on their book…

Leon Fu: I think it’s the same with how BitShares pegs BitUSD to USD by varying the number of BitShares that equates to that like a reporting network, except you’re pegging like an entry credit.

You’re pegging 1 entry credit to a 10th of a cent. That’s what you’re doing with the entry credits.

David Johnston: That’s one analogy and that might be helpful for folks familiar with BitShares, but maybe that’s more similar to a contract for difference.

I would best compare this to gas in Ether, their anti-spam mechanism. This is partly what it is for Factom because there’s a cost of publishing to the network. You don’t get just tons of random stamps because there are some costs.

If there wasn’t that cost, people could just attack the network and put a quadrillion entries in and basically spam the server until it falls over.

Therefore, there has to be a cost and you want it to be a native token because if you were creating a Bitcoin transaction every time there was an entry, you’d be flooding the Bitcoin network with tiny Bitcoin transactions. That is against the point we’re trying to scale the blockchain.

Overall, I would compare it to gas in either or the anti-spam mechanism because you can’t spend less than whatever it is today, 555 Satoshi.

Leon Fu: That’s right.

David Johnston: This is really a similar function for entry credits in the Factom system. That’s an important question because people say:” Oh, why do you even need a token?”, but that’s the answer is. Finally, on the decentralized side, you want the software to pay the hardware.

There’s no Factoid reward for running a Factoid server right now. We’re not rewarding ourselves. The nodes and Milestone 2 won’t be rewarded. However, when we get to the elections in Milestone 3, federated servers will start getting paid by the software, by the network through new Factoids. That takes the checkbook out of our hands or anybody else’s hands.

Leon Fu: It is now $8.7,000,000. That’s it until Milestone 3

$8.7 million is the fixed number of Factoids that will be in existence until Milestone 3.

David Johnston: That’s an important note.

Leon Fu: That’s important for us, investors and speculators to know the supply and the future supply.

David Johnston: There’s a lot of details if you look at the consensus paper, which is available Factom account.

Tai Zen: Just to be clear, one entry is one kilobyte.

David Johnston: That’s right. That’s exactly it. People can organize them and do what they want.

I’m just thinking off the top of my head that you can use a certain number of entry credits to make a chain, and then you can make an individual entry with one entry credit.

Basically, I think it’s 10 entry credits to create a chain and then individual entry credits to put that 1K of data.

That’s important because having these individual chains with unique IDS is how you can easily organize and validate small amounts of data without having to download gigabytes and gigabytes of information.

Tai Zen: To wrap things up here, David.

We didn’t want to break any SCC rules and ask you any investor-related questions publicly. However, if someone wants to reach out to you or learn more about Factom, Inc., the company itself, not the Factoid that’s being traded on the exchanges, can they reach out to you privately?

David Johnston: Not from seeing this podcast. We’re already in a good position there.

This is a sort of education about the company. Customers can certainly reach out to us and build a relationship with us. We hope that they do. Developers that see this or people that want to join factor can come to check it out.

However, we’re good on the investment front. I’m very happy about how our fundraising has gone.

Tai Zen: If you’re watching this, do not contact him about the investing in Factom, Inc. You can contact them about doing business with them. If you’re a developer and you feel that you can help them develop the software, you’re welcome to reach out to them. They’ll definitely need a lot of salespeople to reach out to businesses to get them to use the Factom software, but no need for investors. Anything else before we wrap it up, Leon?

Leon Fu: No, I think I’m good here.

Tai Zen: Okay. Thanks for watching this video.

I hope that this session with David, the chairman of Factom, Inc. is helping you learn more about Factom.

If you want to follow David on his announcements about Factom, you can follow him at factum.com/blog or you can go and check, follow him on his twitter, which is @DJohnson. I’ll leave it in the description below

Thanks for watching this field. Give us a thumbs up if you guys like it. Give us a thumbs down if you don’t like it, so we don’t waste time making it. This will conclude the broadcast. Thanks, Leon and David.

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