Consensus algorithm is a mathematical calculation used to establish an agreement on the state of blockchain networks. Basically, consensus algorithms use different strategies to establish the truth about the network and manage which participant gets to set the truth of the network that everyone follows by agreement.

Many different types of consensus algorithms have been developed with time. The first was Proof of Work. Proof of Work (POW), Proof of Stake (POS), and Practical Byzantine Fault Tolerance (PBFT) are the three main types of consensus algorithms used by blockchain networks. Most of the developed ones share similarities with the main types.

Proof of Capacity

Proof of Capacity is a type of consensus algorithm where the participants need to prove they have large storage or memory capacity in their hard drive in order to mine. Before mining the system generates plots which are large data sets to be stored on the hard drive. To increases your chances of getting a block to mine you need to be able to contain a lot of plots. With this participants need to provide a large storage to solve a challenge. And before the challenge to add or mine the next block, participants need to be verified by providing a piece of data which proves they have allocated space to mine.

Proof of Capacity's difference from proof of Work is the use of storage capacity instead of computation power. Proof of Work requires a lot of power/energy. The amount of energy needed to mine using proof of work is quite a lot. Proof of Work with the use of storage capacity instead of computational power has solved power problems associated with Poof of Work. Proof of space and proof of storage share similarities with proof of capacity. You can tell from their names they are variations of proof of Capacity and have similar functions. Burst, Chia, SpaceMint and Storj are blockchains that use proof of Capacity consensus algorithm.

How Proof of Capacity Works

Plotting and mining are to two parts involved with Proof of Capacity. Plotting is the creation of nonces through repeated hashing of data. Nonce means "number only used once." It is basically the number that is solved for by blockchain miners.

Plotting is the first stage. You plot your hard drive to produces nonces by repeatedly hashing your data including your account ID. 8,192 hashes are contained in each nonce. These nonces are put together into a number of pairs called scoops. These scoops are 4,095 of which each is assigned a unique number.

The next stage which is mining is where a participant calculates for a scoop number. The scoop number is between 0 and 4,095. The scoop number selected is then used together with it's nonces to calculate a deadline value. The deadline is a unit period of time in seconds that must be completed since the last forged block before a participant can forge a new block. The deadline is calculated for each nonce on the drive of the participant of which the minimum is selected. The participant with the minimum deadline wins the challenge and is allowed to add or forge a new block and claim the block reward.
Let's say a participant calculates the minimum deadline to be 30 seconds. If no one else is able to forge a block within the 30 seconds, the participant wins the chance to claim rewards and forge a new block.

Advantages of Proof of Capacity

• The use of hard drive is more energy efficient than the use of ASIC or regular GPUs.
• Doesn't make people who have ASIC chips or other specialized equipment for mining gain advantage over people.
• After mining the drive can be cleared and used for other purposes.
• No need for a constant upgrade of equipment since all hard drives have the ability to store data whether they are new or old.

Disadvantages of Proof of Capacity

• Some participants might have many hard drives of which just a small portion would be used rendering the rest of the storage space useless.
• It is not popular and so it hasn't been adopted by developers.
• Likelihood of being attacked by malware is high when it becomes very popular.
• Upon popularity expensive hard drives would be created which would make it difficult to purchase hard drives for mining.

Conclusion

Proof of Capacity is an interesting mechanism which when adopted by many developers, would help reduce energy consumption with Proof of Work. It needs some improvement though and I'm sure as time goes on and it's developed better it'll be one of the best consensus algorithms. Thanks once again @alphafx for the great lecture.