Why Proof-of-Capacity could be the future of cryptocurrency

Most people by now have learned the basics of cryptography-based digital currency, aka “cryptocurrency”, such as Bitcoin BTC. You may even already know that they run on a newly decentralized ledger called a blockchain. All of this still leaves the most common question about cryptocurrency unanswered: Where does the value come from? It may seem like a strange concept but like any form of currency or trade agreement in history, the value is not intrinsic but rather based on a consensus – or an agreement by all parties involved that this “thing” represents economic value. In cryptocurrencies, this agreement is based on an indisputable set of rules called a “consensus algorithm,” which determines how many total coins will be made and more importantly how they will be made or mined. There are a wide variety of algorithms that vary slightly from one digital coin to another, however all but one fall into one of three protocols:

•    Proof-of-work – This was the original mining protocol developed with Bitcoin. PoW blockchains operate by rewarding miners for using computational power to solve complicated calculations. The more computational power you have, the more likely you are to create the next block and receive the rewards.  The calculations required to solve the next block increase in difficulty over time which means that in order to keep up, miners must constantly update hardware and use more energy to power it. This has led to massive mining “farms” which create an unfair advantage for regular users while reducing the overall decentralization of the ledger.

•    Proof-of-stake – This was the first attempt to offer an alternative to the prevalent PoW protocol and hopefully re-level the playing field. In proof-of-stake coins, the mining – or “printing” in this case – is written into the coin itself. Blockchain rewards are distributed to users for holding, or “staking”, a number of coins in their open wallet. While this solved the problems of energy consumption and endless hardware upgrade requirements, the issue of unfair advantage remained. Those users with the largest stake are able to reap far greater rewards and this requires having the financial means to purchase a large amount of PoS currency to a stake in the first place. There are also obvious security concerns with having your wallet open and online 24/7.

•   Proof-of-activity – This protocol is not really novel but combines aspects of the previous two in various ways depending on how it is implemented. This creates interesting ways of approaching the method of mining a given cryptocurrency but fails to correct, or even address in some cases, the main criticisms of the other two protocols. Energy consumption rates are still high and unfair advantages or fraud are still possible.

Now, to return to the question of value, we can now understand that the features written into a given currency such as unique algorithms and mining protocols will generate real-world interest based on benefits of keeping the ledger, usability of the currency and other features such as security and privacy. The more people that are attracted to a particular currency, the stronger the consensus is on its value and the network becomes more decentralized and secure. This all translates to real-world economic value. So what if I told you there was a fourth protocol for mining? One that is not the only novel in its approach but also solves the inherent problems of the PoW and PoS systems, thereby opening the network up to many more individuals at an equal rate of profit-per-dollar. Well, there is Proof-of-Capacity.

The Proof-of-capacity consensus protocol was introduced with a new coin called “Burstcoin” in August of 2014. To date, Burst remains the only coin to implement PoC, making it a very novel platform. Here is a very brief summary of proof-of-capacity taken from the Burstcoin whitepaper:

“This algorithm allows for the use of storage space instead of raw computational power as is being used in Proof-of-Work (PoW) systems and is responsible for making Burstcoin energy efficient. Efficiency – while similar to Proof-of-Stake (PoS) systems, is still achieved by a low barrier to entry, where you do not need to acquire a significant stake of the currency in order to be able to participate in the mining consensus.”

What this is saying is that Proof-of-Capacity is both eco-efficient and egalitarian in nature, especially when compared to the current algorithms. These two features alone solve the biggest problems facing many currencies without introducing any major new issues, at least as far as can be told, which is definitely worth your attention. However, Proof-of-capacity actually solves another huge issue facing global blockchains in the very near future. That is the problem of scalability, or how to store legacy blocks on the blockchain indefinitely without overloading the storage capacity. As the name implies, this is exactly how proof-of-capacity works: idle storage capacity.

Rather than mining being based on raw computational power like traditional proof-of-work algorithms, proof-of-capacity is based on the available space of your hard drive. The way this works is by configuring your hard drive in a process called “plotting”. Whereas in proof-of-work mining the computer must actively calculate and find solutions, with hard drive plotting the computations are done beforehand and the solutions are stored on your computer. Some of these solutions, or “plots”, will work faster than others and if you happen to have the fastest solution to the most recent block, you are rewarded for the block. This essentially allows you generate a passive income with nothing more than your unused storage space.

The more plots you have on your hard drive, the better your chances of solving the next block. So while it may seem easy to tip the scales by simply buying more storage capacity, it is in fact not practical. For one, hard drives are significantly more affordable and accessible than ASIC machines or high-end CPU desktops. This makes it more difficult to gain an advantage over others but even more interesting is that the equal profit-per-dollar ratio means that favor actually falls with the smaller scale miners that have little to no overhead costs. This, in turn, attracts an increasing number of individuals to participate by using their hard drive space to earn money thus making the network more secure and more decentralized at the same time.

Proof-of-capacity is still very new and underutilized. It may be a while before it is fully recognized for its benefits and implemented into new coins or used as an update for legacy coins like Ethereum ETH and Bitcoin BTC. It certainly deserves our attention at the very least. The ultimate goal of the cryptocurrency movement is to create a decentralized platform that can be used globally to disrupt outdated financial institutions and systems in a secure, autonomous, and shared manner. The proof-of-capacity algorithm shows great potential as a means to reaching that goal. At the same time, it requires around 30 times less power than ASIC-based PoW mining making it the most energy-efficient of the mining protocols. It isn’t hard to imagine how this approach if taken seriously, could change the horizon for cryptocurrency in very exciting ways!

Even though there are currently no proof-of-capacity coins available on the MinerGate platform, accessibility has always been the major underlying drive for the team behind MinerGate.com. They have created the most user-friendly and accessible mining platform to date that will help you to mine the currencies best suited for your setup rather than have you competing with unbeatable ASIC farms. MinerGate.com is driven to bringing cryptocurrency to a much wider audience and encouraging their participation in this world-changing technology. As firm believers in the potential of cryptocurrency and blockchain technologies, the MinerGate team is always looking forward to progressive solutions offered by emerging ideas like proof-of-capacity and how to implement these protocols and others into future updates.