It can work *in a more mainstream setting* - because it's viral in nature, and if your local supermarket subscribes to a particular taint-list, it's in your interests to have wallet software which *understands* the taints that this supermarket subscribes to and the (initially small) penalties(taxes) it is enforced to enact.
Enforced? By whom?
By the same local authorities which enforce all businesses to be registered and pay their taxes etc.
Bitcoin exchanges and popular high-transaction merchants can be required to implement taint-aware systems by whatever geographical jurisdiction they operate in.
It matters not. Because it is so easy to mix coins, all you need are enough people willing to throw their 100% untainted coins into the mix and your approach fails miserably.
No - the mixing matters not. It's computationally intensive, but nevertheless practical with today's technology to follow the chain and apply taint in the appropriate percentages.
"There's a time when the operation of the machine becomes so odious—makes you so sick at heart—that you can't take part. You can't even passively take part. And you've got to put your bodies upon the gears and upon the wheels, upon the levers, upon all the apparatus, and you've got to make it stop. And you've got to indicate to the people who run it, to the people who own it, that unless you're free, the machine will be prevented from working at all."
- Mario Savio
Nice.. but you seem to still be missing the point.
The various 'taint lists' are overlays that will be applied in multiple (usually geographic) jurisdictions. You will always be free to trade Bitcoins as if the taint lists don't exist with other like-minded taint-haters (or because particular taints are largely only enforced in a region you are unlikely to deal with). This isn't about changing the protocol, nor even the reference client.
The effect of various taint-lists being applied is that there will be a viral incentive for the average user to subscribe to them in order to maximize their wealth.
(In terms of being able to freely spend their coins at the various government-audited exchanges & merchants)
Now it's perfectly reasonable to argue that if someone advertises a price in 'BTC' - that this should imply *any* BTC ie a taint-agnostic transaction. I wholeheartedly support that sort of up-front honesty in the arrangement of any Bitcoin deal.
Hows that? Mostly irrelevant. Tainting will work in a world where the core bitcoin.org software *never* implements any taint-aware code.
Ok, good. So there will be no code in the client that will try to load your no-fly list. That's fine then.
Of course. This much should be obvious by now.
Subscribing to any (of the presumably multitudinous) taint-lists is completely optional - except that there is a clear viral pressure on the average consumer to opt into using taint-aware wallet software in order to avoid
a) penalty-taxes at control points
b) mandatory government reporting on your recent transactions if you happen to be 'early' in the chain of transactions since a particularly attention-worthy event.
(e.g kidnap proceeds, terrorism funding etc)
It'll be locally applied, and thus people will be locally incentivized to have taint-aware wallets - even if they hate the whole idea.
Have you been shopping on Silk Road?
No. Have you? Are you being facetious here?
Perhaps you don't understand the point that taints can (I predict 'will') be applied if Bitcoin ever becomes seriously mainstream across the globe.
You'll always be free to laugh at the small nation on the other side of the world which implements this, and offer their citizens fewer 'clean' bitcoins from your stash in exchange for Bitcoins that those silly folk view as 'tainted'. Profit for you!
(At least until some sort of international cooperation amongst tainting authorities starts to make some of your coins spendable without penalty at fewer merchants)
The only way this sort of system won't work is
a) If some sort of 'blinding' mechanism gets built into the Bitcoin protocol
I don't know enough about this to know if it's feasible though)
b) The various taint-implementing authorities go overboard in applying taint - thus so expanding the pool of 'tainted' coins that the black-market economy is effectively stimulated. (see my earlier comments about it being somewhat self-limiting in this regards)
c) political/social pressure makes tainting impractical for authorities to implement.
I think this is a fools hope in that some authorities somewhere will implement it anyway. If you can manage to get the law in your country to declare it unconstitutional or unreasonable in some way to 'tax' people via this sort of system - good on you.. but when balanced against law-enforcement's mandate to curtail kidnapping, terrorism etc... good luck!
My preference would lean towards a) but with provisos.
I think your dismissal of the possibility of this sort of viral-tainting even occurring is damaging to the possible consensus required to avoid it in some technical manner.
A counter-argument to implementing a) would be that if law-enforcement truly can't curtail things such as assassination markets and other 'worst of the worst' events, then their only alternative is to crack down in the most draconian ways imaginable to declare Bitcoin utterly illegal and thus limit it forever to the black market.
I suspect that it would be preferable to live with the various self-limiting taint systems and allow Bitcoin to expand to more mainstream usage.
I've not seen anyone else comment on my notion that any authority which over-tainted would effectively be acting against their own interests by increasing the incentive to spend their coins on black-market goods and services. If this is the case, and I think it is, then a world in which various taints are enforced is preferable to a world in which Bitcoin is equated with terrorism and treated in a zero-tolerance manner by authorities.
Taint systems or not - you'll always be free to transact Bitcoins with others who value them irrespective of taint.
With taint-systems - Bitcoin has a chance of serving more than the black market niche.