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It s well known mining pools as well as hashing power is centralized in countries where electricity is cheap and using mining farms rather belonging to at least medium sized companies than single hand individuals.

In the same time, it s worth noting most countries have their fincen equivalent linked with other agencies preventing payment processors like banks or visa or paypal from accepting some transactions coming from to or from specific individuals or countries under sanctions like North Korea.

So imagine after a round of negociations, an agreement modifying current Bitcoin s consensus rules for preventing a common set of Bitcoin address (changing dynamically) from spending their money is found. Then the following framework can be set (the number of countries reaching the agreement have to represent more than 50% of the global hash power). This means after regulating fiat exchanges, this is mining which becomes regulated. It might even be done through Interpol.

  • Mining pools as well as miners using them are recognized as playing the role of banks (processing transactions) in the traditional system and therefore are not only required to not mine transactions from specific addresses but also to reject blocks directly containing or reffering past blocks containing such transactions. This would be implemented through soft forks. With the existing laws, in many countries this can be done using a decree.
  • In order to enforce compliance, a lightweight process is implemented where instead of registering with the related agencies, records of addresses are updated on a website and miners and mining pools need to declare as well as be able to prove which blocks they mined or helped to mine (through mining pools) when filling their tax returns related to mining income.

Of course, that s not to say there s would be a fierce backslash attempt as a result, and that many mining pools would choose to move to safe countries. But ultimately, the rule of markets would apply, and miners having the cheapest cost of mining would choose mining pools complying with the regulations from their countries in order for themselves to comply with their requirements if they don t produce blocks directly.
In order for such scenario to work, the will to stay on a blockchain which was never hard forked would prevail over the will to resist the resulting soft forks much like what happenned with Bitcoin Cash.

Unlike a plain ban where miners don t have any incentive to accept any rules when mining, this would act as a variant of a 51% attack by a state actor which is not only easier to implement but also easier to accept and attract other states at it.
And the longest chain would be the run by complying companies with better access to cash especially for cryptocurrencies using delegated proof of stake. Additionally, if those governments regulated sort forks works (don t accept a transaction after past blocks), any attempts to include such transactions would result in miners stripped from their rewards.

One of the big benefits is this would also apply to things like Dash or Monero on some cases. leaving only cryptocurrencies using ZsNarks (where even the mining pools have no knwolwedge about the address they include in the block they mine but also the potential utxo).

Under those conditions, would such plan work technically?

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    It seems that this question may be too specific and technical to fit the Worldbuilding SE. Here, we generally do better with questions that are phrased more openly, focused on "How?" and "Why?". I would suggest that you could rephrase your question in such a manner or split it up into multiple questions. Personally, I find the description of a hypothetical scenario in a wall of text and asking "am I right" to be rather uninviting to potential answerers. – Murch Feb 2 at 17:29
  • Maybe it would be enough to turn the question around: "How can the Bitcoin project prevent governments from turning Bitcoin into a permissioned system by forcing Bitcoin users to register addresses and only allow payments to these whitelisted addresses?" – Murch Feb 3 at 17:52
  • @Murch you didn t understand. the main banking system used blacklksts, and the same would apply here. Miners don t have to registers addresses but only register the blocks they received money from. – user2284570 Feb 3 at 17:57
  • Since you can use new addresses for every payment, I don't see how blacklists could ever precede blocks including the new addresses. – Murch Feb 3 at 18:12
  • @Murch that s right. It doesn t prevent one from receiving dark money. It only works at preventing from spending addresses known as tainted. And unlike in the main public banking system for frozen bank accounts, the warrent can t be private as the ever changing blacklist needs to be public. The mempool remains uncensored. – user2284570 Feb 3 at 18:16
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Mining pools as well as miners using them are recognized as playing the role of banks (processing transactions) in the traditional system and therefore are not only required to not mine transactions from specific addresses but also to reject blocks directly containing or referring past blocks containing such transactions. With the existing laws, in many countries this can be done using a decree.

Confirmations are a service that miners provide, and if a miner does not provide confirmations, they lose money and are outcompeted by more competent miners.If they don't mine lucrative transactions, they earn less (or possibly start losing money when the block subsidy is further lowered). Game theory is enough here, since any miner that mines non-lucrative transactions in order to censor higher-fee transactions is deliberately hobbbling themselves, and other miners can swoop in and push them out of the market.

And? If multiple governments get into the mining game, and they are of different political objectives, then they have incentive to include transactions that their competitors want to censor. Which is exactly the same as current situation, a miner will get a high-fee transaction censored by a competitor because high fee. I don't see the problem you have here.

https://www.reddit.com/r/Bitcoin/comments/jtq8mg/censorship_by_mining_pools/gc7q7jm?utm_source=share&utm_medium=web2x&context=3

The long-BTC demographic of miners are who we envision being the early adopters of Stratum V2 job negotiation (allowing miners to choose their own transaction sets instead of only pools doing it). However, one of the more interesting aspects of emerging hash rate markets is that they redefine who can be a “miner” in the first place.

Stratum v2: https://twitter.com/slush_pool/status/1346515777101434880

Also people who care about privacy, contribute in mining and using Bitcoin by running their own full node will have less issues compared to people who don't care about privacy, use Infura like services and have people influencing the protocol development that believe in censorship:

https://www.reddit.com/r/Bitcoin/comments/kqyg0l/a_2nd_american_miner_marathon_patent_group_is/gi74q75?utm_source=share&utm_medium=web2x&context=3

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  • And? If multiple governments get into the mining game, and they are of different political objectives, then they have incentive to include transactions that their competitors want to censor they don t get into the mining game. They only require regulation about mining pools. The same is true in real banking system, but it become some minor fiscal paradize. Nothing that allow North Korea circumvent transactions. And even if they does, it wouldn t be the longest chain. – user2284570 Jan 25 at 8:48
  • Why would you assume cheap electricity can only be available to someone trying to censor transactions? I know one guy here in India who does mining at a big scale with very low electricity cost – Prayank Jan 25 at 8:49
  • Confirmations are a service that miners provide, and if a miner does not provide confirmations, they lose money and are outcompeted by more competent miners.If they don't mine lucrative transactions, they earn less (or possibly start losing money when the block subsidy is further lowered) that won t happen where electricity is below 20cents per kilowatts. And doing so would result in being stripped from their mining rewards as if they mined a double spending transaction. – user2284570 Jan 25 at 9:14
  • You have lot of misunderstanding and assumptions about mining. I would suggest discussing it on Reddit or chatroom: chat.stackexchange.com/rooms/8089/mempool – Prayank Jan 25 at 9:26
  • As G20 and oecd countries would have reached an agreement to end the use of Bitcoin for money laundering and terrorism not only at fiat exchanges but on the mining level. his Bitcoins generated by mining would be dark money somewhat restricted from spending by India. Also if the agreement is working (since most of Bitcoin mining happens in complying mining farms), he would be stripped from his rewards as if he mi ned a double spending transaction.Stratumv2 would help to some extent but it wouldn t change where electricity is cheap.I do understand how consensus changes/soft forks works, thanks. – user2284570 Jan 25 at 9:30

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