I'm still not clear why factoids are not considered cryptocurrencies and why bitcoins or off-chain Bitcoin contracts cannot be used instead.
Reading through the white-paper cleared up a lot of questions I had.
Basically, the Bitcoin blockchain simply can't handle very large data entries - so the Factom P2P network and blockchain handles larger entries which are then hashed into the Bitcoin blockchain. So, Factom is a layer on top of the Bitcoin blockchain. The two chains become intertwined which strengthens both of them. Factoids are tokens that are spent in the process of entering information into Factom. They serve as anti-spam and they also serve as a way to reward the federated servers.
Factom can operate on top of any blockchain - but they have chosen to use the Bitcoin blockchain. Kudos to them
That sounds nearly identical to the Bitcoin Lightning Network. They plan to use a hub and spoke model with serial multisig contract micropayments. It would only add one step to hash your data through static IPs. Howeverer, the FACTOM white paper doesn't discuss how the Factom blockchain will achieve consensus. Bitcoin contracts would require an open payment channel. consisting of counterparty (not xcp) deposits.
The information about FACTOM is unclear at the moment. I'm no longer skeptical of its veracity. Execution has been Bitcoin's historical adversary.