Scary, I had the exact same thinking and idea...
I was going to post this on my new blog.
But have not had the time to finish it.The biggest obstacle with Bitcoins for mass adoptation is the anonymity.
Yes cash is also anonymous, but unlike cash, Bitcoins can be transfered
from an anonymous source to another anonymous source.
With physical cash you have to transfer it in the real world.
An analogy to this would be that its almost the same as if you could teleport real cash to anywhere in the world.
But only the person recieving the cash knows where.This means that bitcoins are perfect for certain types of crime.
Especially kidnapping comes to my mind, since it solves an old problem with kidnapping.
How will you get the ransom without anyone following you.
With physical cash a kidnapper needs to pick them up at a physical location
which makes it almost impossible for the kidnapper to know that its safe to pickup
Because a bank transfer would be traceable.
So for the first time in history a kidnapper can now kidnapp someone and get the ransome
and get away with it.
Unless you are really naive, its obvious that its going to start a new crime trends such as kidnapping and extortion as we are getting more and more poor and desperate people.
But.What will happen the day that someone kidnaps a cute kid and ask for the ransom to be paid in Bitcoins?
This becomes something HUGE in the NEWS. The Bitcoin kidnapper, and its going to be reported all over the world.
There will be heated debates and a majority of the opinion will turn against Bitcoins and similar anonymous cryptocurrencies and rightfully blame them for making it possible to ask for anonymous ransomes.
The day this happens, Bitcoins will be abandoned and boycotted by many normal investors, business and normal persons.
No "serious" business will want to be associated with this currency.
If/when it happens its also likely that soon after, just like US blocks pokersites, they will block bitcoin sites and make it illegal to trade with Bitcoins.European and Asian countries will follow
This would have a huge impact on the price of Bitcoins and nearly destroy them as people panic sell as the value drops, only very few wanting to buy.
I can even see how the people working on Bitcoin will be grilled and held responsible in TV shows.
Recieve hatemails from angry mothers and have to go out and say they were naive and Bitcoin was not meant for these things to happen and that they have stopped working on it or are working on a solution.
Unless there allready is a hidden solution. If there is and the kidnapper is caught, than Bitcoin will be the hero.
Otherwise there will be made a new non anonymous cryptocurrency, if possible will step up and take Bitcoins place to become the world online currency or Bitcoins will be illegal or regulated in most countries in the world.
Bitcoins will still have a place in black markets etc but it will never get legal in US and EU unless there is a way to blacklist adresses.
Even if its possible to trace Bitcoins its enough that a single crazy person think its impossible to trace them and kidnap a kid and ask for Ransome to get the public opinion to hate the coins.
Maybe there acctually needs to be some way in the client or in a cryptocurrency to mark the money legit or illegal.
All there needs to be is a way for clients to check if an adress that money comes from has a message
on a site. Saying that the adress is a illegal adress.
The question than would be by who? Governments/police or exchange services or all of them?
The public and the forum people cannot do this and especially not the software coders.
Since this could open up to blackmailing, mob behaviour etc, unless you pay us, we will taint your adress etc.
And how will this work in a world?
I think that governments will simply cooperate.
The US will have one list, russia another but most exchanges will have to demand that all lists are clean.
There might be exchanges that dont demand clean lists, but you will probably get less money for your coins at those.
Whitelisted coins will allways be in a higher demand since you will be able to spend them anywhere in the world.
I would imagine it working like this.
The person will see the warning message associated with the adress.
The message could even be of different kinds depending on in which countries they are blacklisted.
If they are proved to be illegal or suspected to be illegal and what type of crime.
"Warning the coins in that adress are from a serious crime. Accepting them is a crime in US, EU etc list of countries."
Please send those coins back and report to us.
Or in another case.
"Warning the coins in that adress might be stolen, accepting them could be a crime in your country"
It will smear onto your adress unless you send them back.
This smearing would make it impossible to make a new adress that cleans the coins.
Would it even be possible? It probably would.
Most people dont know it, but there is something similar in the poker world.
Accounts and even persons do get fraud scores and these are traded among all the bigger poker sites since they collaborate by sharing info on this with services such as this.http://www.volusion.com/merchant-account/credit-card-fraud-protection/
But the question remains.Will the government bother with such trouble?
I dont think they will unless bitcoins are really big.
It will probably just be easier for them to outlaw Bitcoins.
They could "force" well somewhat force, by making it illegal to not do a check against their database to se if a bitcoin adress has some message or not.
Sites that does take money from blacklisted adresses will be taken down or shut out.
This will force people to use a client that can see those messages unless they dont care but that would mean that
they will not be able to use their coins on other than black markets.
If it would be possible, it could make stealing Bitcoins by hacking less interesting and especially kidnapping and asking for ransom.
What if the stolen Allinvains coins adress was marked as illegal?
It would have meant that when they tried to cash them out a MTGox they would not had been able to do so. MtGox would probably not have accepted those coins.
Saving Bitcoin from atleast one crash.
Their only option would have been to cash them out in the black market.
But at that market they would be worth much less.
I think that even most black markets would check the list.
They would be to curious to see why the coins are blacklisted, some would not accept certain types of coins.
This would also make it less attractive to acctually try and steal Bitcoins since their value would increase.
In the longterm it would probably also mean that you will have to whitelist you adress if you want to use the coins at any bigger company.Question is if there will be greyzones.
Coins that are not whitelisted or blacklisted.
Thinking of it, it will probably end up with the governments blacklisting all the coins and adresses that are not whitelisted?
Go to the IRS and whitelist them.
I can only see that or all Bitcoins getting illegal in the longterm, but I´m taking longterm 10-20 years.
But the question is why should a government bother with having Bitcoins legal unless there are advantages.
I can only see this happen if the people demand Bitcoins, because they dont trust the government printing the money
and because it means banks cannot charge whatever fee they want.
If Bitcoins grow bigger the governments will deal with Bitcoins one way or the other.
The first thing they will do is ofcourse try to regulate the exchanges.
And after that there will more steps that follow.What would Bitcoins getting legal mean?
Bitcoins getting legal will also mean that their value will increase, since
it would mean that they are here to stay and can be adapted by everyone.
It might still be possible to have anonymous adresses in some countries as long as they pay taxes
and there will probably be higher taxes on them.
I really like the concept of Bitcoin, with less power to the banks, and no government printing etc.
But the anonymity is going to be a huge obstacle for it no matter if we like it or not.