Proof of Capacity (PoC) consensus algorithms require network participants to prove they have performed a certain amount of storage operations in order to mine a valid block.
Where Proof of Work consensus requires users to prove they have performed computations in time (to guarantee a 10 minute space between Bitcoin blocks, for example), Proof of Capacity exchanges time for space - and requires users to show they have stored and retrieved a certain amount of data.
Instead of forcing participants to spend some value in computing time, PoC requires miners to prove they've spent some amount in storage capacity.
Sounds simple enough, but hoow it actually works is quite intricate.
PoC requires users to store a large amount of cryptographically verified data structures in a local hard drive. Each structure is given a unique identifier that is only used once. This unique number is similar to Bitcoin's nonce, which is used to compose a block header that hashes to a number below a certain threshold.
The PoC system requires the user's hard drive to be mapped into nonces which are paired with hashes. When the next block is mined, the only way to retrieve the correct combination of hashes is by mapping the nonces to the hashes stored on disk.
This way the user has proven that they have stored all the hashes for all the required nonces.
This process is, of course, technically more complex than this but the purpose of this article is to give a ELI5 overview of PoC.
In short, what a PoC system does is exchange time for space. Instead of trying to solve trillions of hashes per second, like in a Bitcoin mining operation, PoC requires users to have stored the hashes beforehand, therefore proving a certain amount of hard drive real estate was consumed.
Every consensus system requires users to prove some value has been spent.
This value can be spent in actual cryptocurrency (proof of stake), massive work (proof of work) or, in PoC, proof that some amount of storage has been spent.
See also: Proof of Space also uses Hard Drive space to solve cryptographic problems.
Return to main article: ELI5 Summary of cryptocurrency consensus mechanisms
Investopedia: Proof of Capacity (Cryptocurrency)