In other words you can implement arbitrary dynamic trust, Opening up the possibility of arbitrary hierarchies, and much more efficient and robust mechanisms of establishing truth. Authorities could be designed arbitrarily and evolve on top of this core protocol. This so far sounds closer to tcp/ip foundation. Bitcoin would be more like Series of children with a dynamic system of never ending strings and Styrofoam cups.

I bet there is already CS research theory ready to apply to this design. (Easier said than done and I am just guessing really).

Somehow I don't think you've met very many 5-year-olds.