Why Proof-of-Capacity is the future of cryptocurrency

in burstcoin •  8 months ago

The enormous upsides of blockchain technology are well documented. As a financial instrument, cryptocurrencies can facilitate the global flow of payments in a rapid and cheap fashion; furthermore, cryptocurrencies can write smart contracts into the blockchain whereby terms of an agreement are stored in public ledger and the result of the contract is self-executed.

Now, the two well known and largest market cap coins are Bitcoin and Ethereum. Presently, both of these coins consume an enormous amount of energy, with some estimates suggesting that Bitcoin could consume up to 0.5% of global electricity by the end of the year. The reason that these coins require such a tremendous quantity of energy is that the method that they use to "run" their blockchains is called Proof-of-Work which requires raw computational power. This computational power is typically deployed in the form of specialized computer systems called ASICs (Application-Specific Integrated Circuit) which need electrical power in order to operate. In turn, the energy usage of these coins threatens their sustainability.

In response to this issue, Ethereum is preparing to convert to a system called Proof-of-Stake, where coin holders can validate the blockchain as opposed to using work to validate it. The upside of this is that it does not require the intense computational power and corresponding energy usage of a Proof-of-Work system. A large downside to Proof-of-Stake is that it incentivizes centralization of resources and the formation of monopolies since the largest coin holders inherently hold the largest power. This idea is contradictory to the decentralization that many hold to be a large upside of cryptocurrency.

A potential solution to the energy conundrum of Proof-of-Work and the centralization conundrum of Proof-of-Stake is called Proof-of-Capacity. This system works by having "miners use a given amount of disk space to fill with plots. The more disk space is plotted, the higher the chances to generate (win) a block. PoC is thus in direct contrast to other consenus algorithms like Proof of Work (PoW) and Proof of Stake (PoS) where block generators need to proof the performance of some difficult computations or the ownership of a significant amount of currency, respectively." (See here). This process is around 1700x as energy efficient per transaction as Bitcoin and maintains the goal of decentralization by providing many people with the opportunity to participate in the mining process due to the ubiquity of hard drive storage. Presently, Burstcoin is the most prominent coin that has implemented this algorithm. The development team for Burstcoin, the Proof-of-Capacity Consortium has made significant strides over the past year, and has a slew of upgrades planned through the upcoming Dymaxion update. Given the advantages surrounding this consensus mechanism, I would be surprised if this is the last time that you hear about Proof-of-Capacity and Burstcoin.

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