The government cannot undo a Bitcoin transaction. If the keys are accessible, they can seize the coin and create a new transaction to redistribute according to the law.
If the keys are not accessible, then they are totally powerless to do anything at all.
The government submits to the blockchain's rules the same way everyone else does. That's kind of the point.
The interesting thing in this whole conversation is assuming the person holding the key is the custodian of the funds, when it is more the key itself that is the custodian. The keys hold the funds, the person holding the keys can change but that is entirely outside the system but so is getting robbed on the side of the street of the cash in your pocket.
If you truly believe that, I don't think you understand how law enforcement works.
To my knowledge, this hasn't happened yet, but I strongly suspect that it's only a question of time. Embargoes/sanction lists are one of the most powerful mechanisms of law enforcement for governments – I doubt that they will continue to let cryptocurrencies undermine that for too long.
Definitely, but I don't think that mixers would be considered an acceptable "excuse" for dubious coin origin.
> The key holder has the ultimate power to simply throw away the key. There is no recourse for that.
True, but what is the utility of that?
I suppose the point is to not have something seized from you which you do not want taken.
Anyway, these questions are now outside of/unrelated to common sense understanding of what a "finalized" payment is.