Reasons Factom is a fit for Regulated Industries:
At its core, a blockchain is an encrypted distributed ledger that immutably records the transaction history for a network and is accessible to all of its participants. Transactions are secured to the network through consensus using proof-of-work mechanisms like Bitcoin, newer proof-of-stake mechanisms, or other emerging alternatives. Blockchain is expected to transform modern business practices by increasing transparency and security in processes that require trust between different parties before an exchange can be made. Industries that are highly regulated like healthcare are especially expected to reap these types of benefits from the technology since trust is required for any exchange and it must be documented in tremendous detail. Despite the potential blockchain has for making these processes smoother and drastically reducing overhead, few successful solutions have emerged thus far and the technology is nearly a decade old. While there are many possible reasons for this delay, I believe one of the largest is that many blockchains are not designed with the enterprise in mind and one of the main reasons I believe a network like Factom can have a tremendous impact in these industries.
Factom was designed specifically as an immutable data layer for securing information into the Bitcoin and Ethereum blockchains without having to transact on those networks directly. Factom is essentially a collection of blockchains that immutably record any form of data in a very structured, accessible way. You simply create a chain for any topic you want to track and then write data to that chain, where it is recorded as transactions in blocks. Your data is also secured to the Factom blockchain to leverage the power of the overall network. Additionally, Factom is anchored to the Bitcoin and Ethereum networks, so every time a block is added to the Factom blockchain, the data is also immutably recorded on those networks.
“So how is this beneficial for regulated industries?”, you might ask. In any regulated industry it is inevitable that you will be audited at some point. Hence, you will need to produce records of your data to prove that what you said occured actually did or be subject to fines or worse. Currently, this leaves you with two options: have cabinets filled with paper documentation of everything that are secured and accessible to only a handful of trusted employees, or store the information in the cloud. Both of these solutions have a fairly high degree of centralization through which one malicious actor can have a profoundly negative impact. Now suppose all of the data is recorded to Factom instead. You can secure your records to the network directly and have it verified across multiple blockchains to provide irrefutable proofs that it was recorded at a specific time and trace back any erroneous entries to the specific individual who entered it.
The process of implementing IT systems that are compliant with regulations and maintaining them can be extremely costly and time consuming for enterprises in regulated industries. Everything from how data is recorded to who can access it must be accounted for when enterprises select technologies for their business operations. Failure to comply with industry regulations can cost enterprises millions of dollars in fines, reputation, and potential business. As a result, companies in these sectors must invest significant capital to ensure their IT systems are compliant and maintain them for sustained periods. When factoring in the price volatility that the crypto market is subject to and having to spend tokens to participate on blockchain networks, the cost of incorporating blockchain can appear steep and risky to these enterprises.
Factom is also extremely flexible and allows both private and public networks on the protocol. In a distributed, peer-to-peer system the inherent value is in the network size, i.e the more participants involved, the less centralized the network, making it far more difficult to rewrite the transaction history. However, a heavily regulated enterprise must handle highly confidential information that they do not want viewable to anyone.
With Factom, users can create private networks to record transactions of high fidelity information using blockchain and then anchor that network to the public Factom network. All that will be recorded to the public network is a hash traceable to the state of the private network at that time that only the parties on the private network will be able to decrypt the information. Since Factom is anchored to both Bitcoin and Ethereum, the securing of the data will then be further propagated to those networks, providing additional layers of security. Consequently, enterprises in regulated environments can receive all of the immutability and security benefits offered by a public network, but use a lightweight, private Factom network to transact between trusted parties with far less overhead as well.
Factom has already begun seeing use in heavily regulated industries. In 2016, Factom was awarded a grant by the Bill and Melinda Gates Foundation to secure medical records to the blockchain. The U.S Department of Homeland Security has also explored using Factom to verify their sensor data along the U.S border. Most recently, the Triall Foundation announced in June 2019 that it received approval to start the world’s first clinical trial in production on the blockchain using Factom. Having already established this type track record in regulated industries in combination with its ease of integration and stable cost structure, I believe Factom is well positioned to become a leader in heavily regulated environments and I am excited to see how the future of the protocol evolves in this space.