the government know that they only have juristiction on U.S individuals and U.S businesses.. the senate hearing clearly mentioned by each person that regulation at the "business exchange level" is required.
EG businesses that swap bitcoin for fiat. no where did the senate mention making all individuals public keys linked to a persons identity.
no where did coinvalidation say that individuals public keys be in its database.
coin validation are just business advisors, their ultimate plan is to ensure that U.S dollar exchanges such as bitstamp, MTGox comply with FIAT regulations in regards to the fiat side of the business. and if fully complying they will get listed as a legit business on the coinvalidation database. where silk road will get listed as illicit on the database.
its not about individuals. its about business..
so as long as the U.S government only patrol the U.S dollar gateways into bitcoin and leave us to self regulate bitcoin based on personal/morale judgements and choices of who and how we transact coins between each other. then that is the best we can hope for
I don't think it will be that easy
Everyone should have the right to some degree of privacy, and most would agree with that assessment, but that privacy should not extend to masking egregious illegality, such as the production, trade and transfer of child pornography.
With KYC in place, there is reason to believe that identities will be revealed, not to mention stored and analyzed.
For taxes to work you have to reveal at least one of your addresses anyway.
It comes to a point where a centralized solution, as described above, becomes a better choice.
This is also the path Ernie Allen was arguing for when he suggested to improve existing technologies.
