It will also drop the userbase below a useful threshold. Sure, there will be the technical possibility of still managing to use it illegally and undetected--but there will be no herd immunity, there will be no effects of scale that make the system particularly useful or affordable compared to proprietary, centralized, and more performant alternatives. People can and do still use bittorrent illegally, but it doesn't have even close to enough market share to make centralized streaming services nonexistent or non-competitive. Basically the same idea.

The fact that you can't decentralize legislation and physical governance is not insignificant. You can't block the influence of preexisting powerful actors. Those factors do have the power to destroy the decentralization movement, and most likely will.