Most of the times we demonstrate the superiority of Proof-of-Capacity (PoC) compared with Proof-of-Work (PoW), because the latter is the most common consensus algorithm and shares a good number of similarities with PoC.
There is another protocol commonly seen as a good alternative to PoW: Proof-of-Stake (PoS). With PoS, the creator of a new block is chosen in a deterministic way, depending on its wealth, also defined as stake. It is often praised for solving the energy consumption problem of PoW as it removes the need to use energy consuming hardware. However, it also brings new problems to the table. The goal of this article is to demonstrate how PoC shares all the upsides of PoW and PoS, without their downsides.
The biggest drawback to PoS is the decentralization issue. Decentralization is the biggest driving force of cryptocurrencies and their main revolutionary aspect. Two problems are raised by a PoS system: initial distribution and mining reward.
In a PoS system, initial distribution of the coins is made through ICOs, crowdsales, airdrops or similar processes. As a result, distribution happens in a short period of time. At the very beginning, the coins are already concentrated in the hands of a minority. Moreover, with PoS people who have more coins get more coins. With this self-reinforcing process this monetary distribution system fosters inequality.
In a PoC system, coins are distributed to miners over a long period of time through mining. Everybody can mine as it only requires a computer and free HDD space, compared to specialized hardware necessary to mine PoW cryptocurrencies. Barriers to entry are very low. In a PoC system, miners are rewarded fairly in proportion to the disk capacity they use.
This is the main argument behind PoS: it is often praised for its very low energy consumption compared to Proof-of-Work. However, Proof-of-Capacity shares that advantage of energy efficiency with PoS. In reality, with PoS you still have to run a computer which includes a hard drive. Mining with PoC consumes slightly more energy because in miners often have multiple HDDs that have to be plotted. The difference is very thin, and the tradeoff is that PoC is better decentralized and arguably more secure.
Risks of 51% attacks
51% attack refers to an attack on a blockchain by a group of miners controlling more than 50% of the network’s mining hashrate, or computing power. It would allow them to manipulate transactions to their liking.
In a Proof-of-Stake system, if a user gets 51% of the total currency supply there is no way – except some kind of divine developer intervention – to take it away from him. The money supply is your limited world. Once you gained a significant/majority stake, there is nothing else which can revent that.
On the other hand, if someone drove a 51% attack on Bitcoin or Burst, there is always the remedy to add more hardware to it, which is potentially an infinite source, to counterbalance the attacker.
If you want a more in-depth explanation, read this article.
Also published on Medium.