DEFINITION of 'Proof of Capacity (Cryptocurrency)'

Proof of capacity (POC) is a consensus mechanism algorithm used in blockchains that allows the mining devices in the network to use their available hard drive space to decide the mining rights, instead of using the mining device’s computing power (as in the proof of work algorithm) or the miner’s stake in the cryptocoins (as in the proof of stake algorithm).

BREAKING DOWN 'Proof of Capacity (Cryptocurrency)'

Proof of capacity emerged as one of the many alternative solutions to the problem of high energy consumption in proof of work (POW), the problem that inherently promotes cryptocoin hoarding instead of spending in proof of stake (POS).

In the standard and commonly followed POW consensus algorithm, the miners rapidly change a number in the block header as fast as they can aiming to find a correct hash value. The first miner to identify the correct hash value, called nonce, broadcasts that information to the network. Other miners validate and authenticate the transactions before moving on to work on the next block. Essentially, this approach works like a lottery system, where the miners keep changing the hash value to find the correct one.

Proof of capacity allows the mining devices (nodes) on the blockchain network the ability to use empty space on their hard drive to mine the available cryptocoins. Instead of repeatedly altering the numbers in the block header and repeated hashing for the solution value, POC works by storing a list of possible solutions on the mining device’s hard drive even before the mining activity commences.

The larger the hard drive, the more possible solution values one can store on the hard drive, the more chances a miner has to match the required hash value from his list, resulting in more chances to win the mining reward.

To draw an analogy – if lottery rewards are based on matching the most numbers on the winning ticket, then a player with a longer list of possible solutions will have better chances of winning. Additionally, the player is allowed to keep using the lottery ticket block numbers again and again repeatedly.

Proof of capacity involves a two-step process that involves plotting and mining.

First, the hard drive is plotted – that is, the list of all possible nonce values are created through repeated hashing of data, including a miner’s account. Each such nonce contains 8192 hashes, which are numbered from 0 to 8191. All such hashes are paired into scoops – that is, adjacent hashes are combined to form a pair of two. For instance, hash 0 and 1 constitute scoop 0, hash 2 and 3 constitute hash 1, and so on.

The second step involves the actual mining exercise, during which a miner calculates a scoop number. For instance, say a miner begins the mining activity and generates a scoop number 38. The miner would then go to scoop number 38 of nonce 1, use that scoop’s data to calculate a deadline value. The process is repeated for calculating the deadline for each nonce held upon on the miner’s hard drive. Following calculation of all the deadlines, the one with the minimum deadline is selected by the miner.

A deadline represents the duration of time in seconds that must elapse since the last block was forged before a miner is allowed to forge a new block. If no one else has forged a block within this time, the miner can forge a block and claim the block reward.

For instance, if miner X comes up with a minimum deadline of 36 seconds and no other miners can forge the block within the next 36 seconds, X will be secure the chance to forge the next block and get rewarded.

POC allows advantages in terms of using any regular hard drives including those with Android-based systems and is said to be 30-times more energy efficient than the ASIC-based mining of the Bitcoin cryptocurrency. There is no need for dedicated hardware or constant upgrading of hard drives. Mining data can be easily wiped-off and the drive can be reused for any other data storage purpose.

Disadvantages include lower adoption rate, and the possibility of malware affecting mining activities.

Burstcoin is a cryptocurrencies to use proof of capacity.

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