Are blocks necessary?

[stan.distortion]

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[DeathAndTaxes]

Sure if you can solve the sybil attack problem in a decentralized anonymous network.  It is an unsolved problem.

What happens if most of your peers are the attacker (because he runs a 800,000 node botnet and thus has the majority of the nodes on the network for minimal cost)?  Sure you can deprioritize the offending nodes but you have still lost funds and you aren't getting them back.