Historically, ideas within the crypto-economic space have been re-purposed for new functionalities, without changing the underlying algorithm. Proof-of-work for example was first proposed in 1992 and implemented by Adam Back (hashcash) in 1997, and it is hashcash that the Bitcoin PoW algos are based on. Bitcoin took PoW which had been used to prevent spam, and re-purposed it for a “central publishing authority”, that made it possible to produce blockchains.

Ethereums’ Casper put out the idea of consensus-by-bet, an algorithm that mimicked proof-of-work in the way that it had been used by Bitcoin (as in, a central publishing authority), and to use stake vote and a betting game, to converge on a decision (in the case of Casper, what block should be added to the chain. )

New virtual consensus states, like BitLattice, outgrow the need for a centralised publishing authority, since new structures make it possible for transactions to be fluidly added in parallel by each node. This paper will explore the idea of re-purposing consensus-by-bet, specifically the Panarchy algorithm (Nygren, 2017) for new functions.

Panarchy’s consensus-by-bet algorithm, for converging on authority decisions with global consensus

Panarchy is built on proof-of-power, where betting pools converge on an authority decision, through Vlad Zamfirs’ consensus-by-bet algorithm. The betting pools are “powered” by people-vote, using proof-of-personhood and proof-of-suffrage.

Beyond just appending blocks to a blockchain, consensus-by-bet, using proof-of-power, could be used to perform any type of authority decision, where global consensus, and the ability to de-power betting pools that diverge from the protocol, is favourable.

Vlad Zamfirs’ consensus-by-bet as a strong Nash equilibrium

The Casper algorithm as a distributed authority follows a strong Nash equilibrium, where coalitions cannot form in ways that benefit all of its members.