Hi Iddo,

Blacklisting/heartbeats aren't really necessary. What blacklisting does is assure a minimum level of incentive for participation. (i.e. if you get blacklisted you lose say 5% *(years since last signature)*balance. Without blacklisting, then the incentives to participate come from fees. Fees probably need to be somewhat higher to make up for this. I'm not that worried about this though.

The difficulty of reversing txns is proportion to the amount of coins online, so we want to keep this relatively high (not necessarily huge). I would say 40-50% is a reasonable target.

Before I go through the rest of the post, could you do me a favor and respond to this post: https://bitcointalk.org/index.php?topic=127952.0
I'm trying to understand how what we are talking about differs from a full proof-of-stake system where there are a very large number of signatures per block. I don't think the large number of signatures is as big a problem as it has been made out to be. 

Our system here seems sort of similar now that we have a list with a large number of eligible signatories. I'm thinking the list could be narrowed down to a smaller number, so the sigs per block could be quite manageable even if everyone signs.

There seem to be pretty big advantages to using a majority mass of signatures for each block without any randomization (eg. quicker txns, cheaper txns, simpler code).

You also wouldn't really need many incentives if the consensus group was limited to large holders. These guys will earn enough off small fees to make running a node worthwhile. The incentive of making sure the system operates would probably be enough.