Ultimately, the community of users and businesses at large decides. Cryptocurrencies are social contracts that are encoded in software. If everyone agrees that a rule should change, and updates their software in concert, then the rule de-facto changes.
In the absence of total agreement, the decision is made by whoever wins the political fight for user/business mindshare. It's also possible for the question to be answered two different ways (a longstanding fork occurs).
That's called a chain split, isn't it? Usually there are people who follow the new protocol and people who follow the old protocol, so the currency splits into two.
Bitcoin Cash is an example.
But yeah if there's longstanding disagreement, there are two ways for it to go:
* Peaceable fork with replay protection, like Bitcoin Cash
* Fork that seriously fights for the same brand/userbase --- we haven't seen one of these in Bitcoin. Segwit2x would've worked that way, but was canceled
When you change the rules to be less restrictive (add operations, increase block size, etc) then any old version will reject the new blocks, so will keep running their own chain until they are upgraded, potentially forever if there’s demand.
I bought something with BTC after the fork, and all my BCC was emptied within minutes.
1. What if there simply isn't a quorum of the selected signers for a given block, due to people being on vacation, DoS, network failure, etc? Does the whole chain grind to a halt?
2. PoS relies on punishing anyone who signs a block that's not on the main chain. But who defines what the main chain is? If I'm a selected blockmaker or, worse, I control a quorum once, can't I forfeit my deposit to fake someone else out so they sign a block on my bad chain? Then I report both them and myself, bankrupting them and recovering some of my own losses?
3. This whole scheme penalizes cold wallet users. If you don't use your cold wallet funds as mining collateral, you lose the reward. If you do, then anyone who compromises your deposit signing key (which needs to be hot) can wipe you out and steal 1/3 of your deposit.
For your first question, if people are on vacation and there are no validators then Ethereum would be dead. It wouldnt make sense that the global pool of validators would disappear, but even so, it would wait I assume. IF half the validators left, it would choose from the other half.
2. THe main chain is currently defined as the longest defined chain fully validated. To fake someone out, you would need to tell them your vote for a block, and they would need to blindly vote the same without doing any due diligence on the block (which would defeat the purpose) and they would be rightfully burned. That is the same as a miner who just copies the work of other miners, they do nothing. 3. I dont understand this at all. You do not need to stake. You are rewarded but lose liquidity. It is your choice, just as lending compute was your choice with PoW.
Hopefully this is good, the link goes into a lot of detail that should clear things up!