1. The Name of the Game
To have a decentralized digital currency, you need perpetual consensus upon the state of a shared public ledger—the definition of the currency and who owns each bit of it.
Each change to that ledger, wherein some currency is assigned by its present owner to a different owner, must be acknowledged by every peer. However, awareness of these changes can only come through gossip, which means these peers need a protocol that will infectiously attract all of them to the same marshaling of changes.
If a harmonious grasp of the ledger’s current state could be used to conduct a harmonious grasp of its development, then that ledger would become a living protocol—a language of participation that would functionally define its own economic network, transcending the need to justify its contents.
2. How it’s Played
All peers digest all authenticated ledger operations they know about, at a fixed bandwidth, in the order that would entitle each unit of currency to the same share of that bandwidth, and broadcast each one as they implement it.
Although individual peers do not receive parcels in the same order as each other, the mutually predictable manner in which they digest the parcels they have received enables them to filter out that subjectivity: each peer simply redefines the amount of time it has been aware of each parcel as though the passage of time was suspended while it was digesting parcels that were of greater entitlement than that one.
This interpretive filter would allow the peers to witness the transformation of their ledger with a harmony as responsive as their means of communication—mere milliseconds—meaning they would have consensus for free on all data that intimates a unanimous interpretation at that speed, and any other data could be considered an inexcusable foul.
3. The Referee
The consensus mechanism becomes a vestige, no longer involved in establishing the ledger’s development, but instead in establishing whether this development has been acknowledged unanimously. The mechanism is needed only to terminate any currency whereupon the owner has authenticated a dubious message that causes the expectation of consensus on that currency to fall below a certain threshold.
What a consensus mechanism does, in general, is popularize an arbitrary answer that is likely to be an equitable one based on the stake demonstrated by those that propose it. Whether the network adheres to this answer or rejects it is a negotiation between the constraints of perception and the network effect, and could never be formalized by a protocol.
So, the referee is simply a privileged cryptographic signature, defined by the highest value token that submits itself as collateral, which implicitly votes on every parcel by choosing to throw a flag or to remain silent. The network will remain unified by adhering to this bellwether, or by terminating the referee’s collateral.
4. What it Means
A fast, cheap, simple, decentralized and unprejudiced shared public ledger, in which all transactions, without regard for the preference of those in power, would be confirmed unanimously and irreversibly, as promptly and as rapidly as they could be communicated, with no additional costs.