Factom CEO: Blockchain-based Transparent Mortgages Can Restore Trust in Markets

"Once we have better collateral like titles secured by blockchain and better contracts that can self-execute - we can build
Photo: Avi Mizrahi

Blockchain technology is being adopted by firms into new domains far removed from just cryptocurrencies these days. One recent example of this is Factom that last week signed a deal to integrate its solution with Ancun Zhengxin’s electronic data notarization services in China. We asked Peter Kirby, Factom CEO, for his insights about what other industries can benefit from the innovative technology, its current limits and more.

How did the partnership with Ancun Zhengxin come about?

Our CTO, Jack Lu, had a personal connection with the head of Ancun Zhengxin. Their core business is providing a digital notary service, so an immutable (write once, never unwrite) audit trail provided by the blockchain was a natural fit.

What other industries do you see blockchain technology disrupting in the coming years?

The blockchain lets multiple parties agree on a single version of the truth. It creates a permanent audit trail for what happened. This will revolutionize any business where you have to trust a counter party. Now instead of trusting contracts, or courts, or people… you can trust the math.

The biggest market in the world is the debt market. Once we have better collateral like titles secured by blockchain and better contracts that can self-execute — we can build vastly more efficient lending systems and secondary markets for lending products.

How do you build tamper proof titles with blockchain technology?

It’s pretty straight forward. Build a database of title records with restricted administrator rights and use the blockchain as a permanent audit trail for that system. Any unauthorized changes in the title database can be rolled back to the correct version in the blockchain.

Solving the “garbage in, equals garbage out” problem is more challenging. We need to track the process of creating a title record across all steps. The lawyers who submit it, the agents who review it, the checkers who verify it. When the process is documented in an immutable audit trail, there’s a much higher cost for submitting fraudulent records.

What are your plans for the $900 billion private lending market? 

Peter Kirby, CEO, Factom
Peter Kirby, CEO, Factom

The private lending market collapsed in 2008 mostly because of fraud. Borrower fraud, loan fraud, securities fraud. The government stepped in and created a bunch of very strong rules and penalties.

Skyrocketing compliance costs and the $200 billion in mortgage related fines have kept the market from rebounding.

Transparent mortgages with loan-level detail goes a long way to rebuilding trust in the market. A robust and healthy secondary market where all buyers know exactly what they’re getting also will help rebuild trust in the system.

With these tools, we can help rebuild the private mortgage market and restore confidence, but it’s a long journey.

How can we use create transparent mortgages?

The mortgage process is just a record keeping problem. What happened when? And did the sequence match the compliance rules? If we can timestamp the compliance events and make the records immutable, then we have a powerful way to prove that the loan was correctly made. We can also use the same system to track payment records and court proceedings.

How can organizations make their systems more resistant to cyber-attacks using the technology?

Cyber attacks require high-level user access. A simple way to use blockchain is require a new user to be in the system for 12 months before they can access anything high level. With an immutable ledger, that’s impossible to fake. You’re either in the system for 12 months, or you’re not.

Administrators can also create immutable log files of activity, so they can actually see what happened in their systems. In a blockchain word, it would be a lot more difficult to cover your tracks.

With the recent backlogs and slow transaction times on the bitcoin blockchain is it not a problem to add more applications on it?

Factom places one 32 byte anchor into Bitcoin every 10 minutes. So it has a very very very small footprint in Bitcoin. Factom allows application data to move OFF bitcoin and help increase the viability of the network.

Would Ethereum smart contracts not be a fitting solution to many of these industries?

Factom will also be placing these anchors into Ethereum so developers will be able to build solutions with a combination of audit trails and smart contracts. Smart contracts need a data source to execute against – so it’s a natural fit.

Ethereum founder Vitalik Buterin’s fund Fenbushi was an early investor in Factom.

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