Miners are an essential part of the cryptocurrency ecosystem as they are the validating participants that make sure that all transactions are legitimate. There are a number of ways in which these miners can validate transactions. Currently, the two most popular are Proof-of-Work (PoW) and Proof-of-Stake (PoS). However, both of these mining algorithms have their own unique drawbacks which make it harder to scale a cryptocurrency. There is an attractive alternative that is now being recognised and actively pursued by a number of cryptocurrency enthusiasts. This is Proof-of-Capacity (PoC) and it is the underlying consensus algorithm for a coin called BurstCoin. In this overview, we will take you through the current environment and then explain this unique algorithm that many hope will help cryptocurrencies efficiently scale.
Problems with PoW
Proof-of-Work is the original consensus algorithm that is in use on Bitcoin and many other cryptocurrency chains. PoW involves solving complicated mathematical problems called “hash functions” in order to verify transactions and mine the blocks. Because these hash functions are hard to solve, they require a great deal of processing power to solve them. These machines also require electricity to power them. The result is a cost on the miner that will make it impossible for any dishonest miner to propagate fraudulent transactions. While it is still a genius crypto-economic model, the result is runaway energy costs. In fact, the cost of mining Bitcoin is now thought to be at least 0.5% of all power usage by the end of 2018. Moreover, the mining is controlled by a large group of companies who are in an arms race to build the most advanced mining rigs. These naturally undercut the “little guy” who can’t afford the machines.
Problems with PoS
Proof-of-Stake is an alternative algorithm that relies on particular “nodes” staking their coins as they participate in the verification of transactions. These nodes automatically have something to lose should there be a collapse of trust in the consensus algorithm. Given that they have staked their coins, they have “skin in the game” when it comes to the trustworthiness of the coin. These nodes that have staked their coins will act as validators in numerous consensus rounds for transaction verification. Those nodes that have staked the most coins will have more weight in the verifications. The benefit of this over PoW is that there is no arms race to produce the best mining rigs and they do not waste energy. However, there is one rather pointed problem when it comes to PoS. This is the issue of centralisation. Centralisation is the antithesis of blockchain technology. When one miner or node gets too much power, they can act in a malicious manner and harm the larger decentralised network. With PoS, those nodes that have staked the most coins will have more control over the network. This opens the network up to the possibility that wealthier nodes could act in a dishonest way or even co-ordinate malicious actions. Of course, this vulnerability in PoS mining is something that the community is actively trying to improve. For example, there are solutions for hybrid models that combine PoW and PoS. Yet, a better solution could be an entirely new algorithm such as Proof-of-Capacity.
What is Proof of Capacity?
Proof of Capacity is a consensus algorithm that makes use of a computer’s hard drive instead of its raw processing power. The miners will “plot” space in the hard drive in order to take part in the verifications of the transactions. Unlike with PoW mining, the solutions to the hashing problems are solved beforehand and are stored on the hard drives. Hence, each miner will store a large number of these solutions prior to the “consensus round”. When said round is reached, then the protocol will look through all the solutions that are presented by the miners. Those which have found the fastest way to solving the solution will be awarded the block and they will therefore earn the block reward. PoC is also quite ingenious in the way it tries to stave off the threat of ASIC miners. The mining algorithm is much more complicated than traditional PoW mining algorithms. This means that they cannot be solved in real time and hence need to be stored beforehand. Similarly, the block time with PoC is much shorter than that of other PoW coins. Block times are about 4 minutes compared to the 10 minutes on the Bitcoin chain. This also makes it much harder for the ASICs to properly compete. The technicalities of plotting and mining on the hard drive are a bit more involved but there is a great deal of Proof-of-Capacity mining guides that go into this in depth.
What are the Benefits?
The reason that PoC mining has been hailed so broadly is because of the advantages that it has over the more traditional algorithms. These include the following:
- Hard drives require less power than GPUs and ASICs. Hence, they can be used in mining with far less electricity than other coins use. This will counter the energy concerns of many.
- It is ASIC resistant which means that many of the larger mining farms cannot take control of the network. They cannot use their sophisticated machines at the expense of other smaller miners.
- Anybody can use their hard drives to mine the coins. Unlike ASICs and increasingly powerful GPUs, hard drives are quite easy to obtain and do not have to specialised.
- Following on from the previous point, the lack of specialisation is also great for use after mining. These hard drives can merely be wiped of their data and then be used as normal again. The same cannot be said for highly specialised ASICs.
These advantages are perhaps some of the motivating factors behind John McAfee’s support for the protocol. In December last year, he tweeted support for BurstCoin as his coin of the day given that it “Uses 400 times less power than Bitcoin”. As more influencers in the cryptocurrency community start to realise the benefits of PoC mining, adoption of coins such as Burstcoin is likely to increase.
More Growth is Required
While there is a great deal of optimism for the future of PoC mining, it would be naive to assume that there would be no growing pains from the technology. It is currently only being used on one blockchain and we can only know the sustainability once it operates at scale. Proof of Capacity is still a new technology and there may be some externalities that people did not initially consider. Indeed, even Satoshi Nakamoto may not have foreseen the explosive growth of Bitcoin and the potential crisis that would ensue. One can only hope that innovative solutions such as Proof of Capacity can help cryptocurrencies adapt to a changing world.