Microsoft and the University of Maryland have developed a Bitcoin alternative called “Permacoins”. Bitcoin have become the successful e-cash system in the recent years, but mining Bitcoins wastes computational resources. Bitcoin’s underlying mining mechanism, attempting to solve computational puzzles that have no intrinsic utility. So, Premacoins re-purposes its mining resources to achieve a more broadly useful goal like distributed storage of archival data. For example, you could store some 100GB of government data on your system to earn premacoins.
Unlike Bitcoin and its proposed alternatives, Permacoin requires clients to invest not just computational resources, but also storage. Our scheme involves an alternative scratch-off puzzle for Bitcoin based on Proofs-of-Retrievability (PORs). Successfully minting money with this SOP requires local, random access to a copy of a file.
Given the competition among mining clients in Bitcoin, this modified SOP gives rise to highly decentralized file storage, thus reducing the overall waste of Bitcoin. Using a model of rational economic agents we show that our modified SOP preserves the essential properties of the original Bitcoin puzzle. We also provide parameterizations and calculations based on realistic hardware constraints to demonstrate the practicality of Permacoin as a whole.
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Source: UMD, Microsoft Research