What is Proof of Capacity(PoC) in Crypto?

With Bitcoin almost always being in the news for being an energy-guzzling cryptocurrency, there has been a growing shift towards exploring alternate mechanisms to establish consensus on a blockchain. Ethereum has shifted to Proof of Stake with its Merge upgrade due to this reason.

Similarly, a new consensus algorithm called Proof of Capacity(PoC) has also emerged. Using the mining device’s available hard drive space to determine mining rights, it is touted as a sustainable alternative to Proof of Work and Proof of Stake that need more energy and specialized equipment.

However, before talking about Proof of Capacity in blockchain, we need to first understand the concept of a consensus mechanism. After that, you will get the answer to various questions like what is the difference between proof of work and proof of capacity and what is an example of proof of capacity.

Understanding Consensus Mechanisms in Blockchain

Blockchains are decentralized ledgers and, therefore, there is no central authority that approves transactions. For a transaction to be recorded and a block to be added to a network, the nodes have to agree with each other to do so i.e. they have to establish consensus.

There are certain protocols that help blockchains achieve this consensus. These protocols are known as consensus mechanisms. Proof-of-Work(PoW) and Proof-of-Stake(PoS) are the most commonly used algorithms.

Proof-of-Work

It is used by most popular cryptocurrencies like Bitcoin and Litecoin. Miners have to use their computing power to solve difficult mathematical hash functions. The miner who solves the puzzle first is given the right to validate the transaction and is entitled to the mining reward.

As the Bitcoin network has grown, so has the mining difficulty to keep block timings consistent. This means that mining has become so tough that it needs specialized equipment called ASIC and a huge amount of electricity to complete the task.

Proof-of-Stake

This algorithm replaces miners with stakers or validators. Proof-of-Stake has an incentive-based system where validators have to stake their coins as collateral to get a chance to validate transactions on the blockchain. Ethereum is the most popular example of a blockchain network using this mechanism.

What Does Proof of Capacity Mean?

Proof of Capacity(PoC) is a type of consensus mechanism for blockchains. As discussed above, PoW worked well when Bitcoin was a niche thing but it requires huge amounts of energy and the mining process is dominated by a few big nodes. Similarly, while PoS is less energy-intensive, it has other limitations such as a centralization of the process.

In such a situation, there was a need for an alternative consensus mechanism. In this system, miners use the empty space in their drive to mine cryptocurrency. Miners have to dedicate processing power and hard disk storage even before mining starts. This helps increase the speed of the whole process. As it relies on the user’s storage capacity to verify blocks, the PoC mechanism is also known as Proof of Space.

How Does Proof of Capacity Work?

Proof-of-Capacity mainly has two components- plotting and mining. It is crucial to learn about these elements to understand the workings of the process of establishing consensus.

Plotting

It is the first stage in the process of establishing consensus. It involves creating unique plot files with a hashing function called Shabal. As this algorithm is harder to compute than that of Bitcoin’s SHA 256 variant, miners compute the solutions in advance and store them in their hard drives.

Nonces are produced when hard drives are plotted. Miners continually hash their data until they manage to solve the nonce. Each nonce will contain 8,192 hashes and they are bundled into pairs called scoops. There will be 4,095 scoops in total and each of them will be assigned that unique number.

Mining

In the second stage, i.e., mining, the miner calculates a scoop number. This number will be between 0 and 4,095 and will be used along with its corresponding nonce to calculate a unit of time called deadline. 

Once this is done for all the nonces on the miner’s hard drive, the shortest deadline will be selected. The miner who has the shortest deadline will be allowed to create a new block and will get the block reward.

Proof of Capacity Pros

Low Barriers to Entry

Unlike proof of work which needs specialized equipment and cheap electricity, miners can get started with proof of capacity with just a regular hard drive. Even hard drives with an Android-based system will work. Thus, there are fewer chances of individual miners losing out to bigger ones.

Energy Efficiency

Proof of Capacity is a much more sustainable mechanism to establish consensus. It is said to be up to 30 times more efficient than the ASIC-based mining system used for Bitcoin or even regular GPUs.

Durability of Equipment

Apart from size, newer hard drives don’t offer much in terms of optimization. Thus, miners don’t need to regularly upgrade their equipment. They can easily use their old hard drives for mining and storing data.

Reusability of Hard Drives

In proof of capacity, miners can wipe the hard drive after mining and use it as a piece of regular equipment. This is not the case with ASICs which are specialized equipment used for cryptocurrency mining.

Proof of Capacity Cons

Limited Adoption

Proof of Capacity is being used by a limited number of people. The majority of the developers have not adopted this system and still largely rely on Proof of Work and Proof of Stake. Thus, there are limited mining opportunities available in the Proof of Capacity mechanism.

Malware Risk

Hackers can try to take advantage of the system if mining becomes popular. Malware can infect computers and it can be more difficult to determine whether the excess hardware space is being used for illegal reasons or not.

Arms Race

It is believed that the increasing popularity of Proof of Capacity could start an arms race with developers running to produce higher capacity hard drives. While this consensus mechanism is theoretically supposed to reduce entry barriers, nothing is stopping a person from acquiring a bigger hard drive to try and mine the majority of the money.

What is an Example of Proof of Capacity?

Proof of Capacity is not yet as popular as Proof of Work or Proof of Stake but there are some cryptocurrencies that are making use of it.

BurstCoin(Signum)

Signum, previously known as BurstCoin, is a pioneer in the use of the Proof of Capacity algorithm. It is a mineable cryptocurrency that is designed to be energy-efficient. 

The Signum blockchain is, in fact, more decentralized than many other blockchains as it has little to no barriers to entry. Miners don’t need any expensive, specialized equipment and can get started with just a hard drive. The blockchain has a block time of around 4 minutes and a maximum transaction throughput of around 80 tps.

Permacoin

Developed by researchers at Microsoft and Maryland University, Permacoin is a more sustainable alternative to Bitcoin. It is not strictly a Proof of Capacity-based cryptocurrency but involves an alternative scratch-off puzzle(SOP) for Bitcoin based on Proof-of-Retrievability(PoR). Permacoin reduces the digital wastage of Bitcoin by using the SOP for a highly decentralized file storage.

SpaceMint

SpaceMint, earlier known as Spacecoin, is a cryptocurrency that uses a non-interactive version of Proof of Capacity to establish consensus. Unlike the perpetual electricity expenditure of Bitcoin, SpaceMint only requires a one-time cost of hard disk capacity.

Conclusion

Blockchains need to have the nodes in agreement to add a new block to the chain. There are certain mechanisms called consensus mechanisms that help the network to achieve consensus. The widely used ones like Proof of Work and Proof of Stake have certain limitations.

Therefore, Proof of Capacity has emerged as an alternate consensus mechanism. It is more energy-efficient and reduces entry hurdles for miners. However, only a few cryptocurrencies are known to use this system. Hence, it is yet to be seen how it would fare on a larger scale with more network volume.