I explained in more detail here: https://news.ycombinator.com/item?id=32532604
The only question then is how indirect these sanctions can be. The node might not be allowed to validate a block with banned transactions, but what about the next block, which does not include these blocked transactions, only a pointer to a block with these banned transactions? What about the second next block, which has only a pointer to a block with a pointer to a block with these banned transactions? How many blocks until the link is tenuous enough that the validators under USA jurisdiction could validate again without fear?
Suppose Tony texts Paulie and tells him to wack a guy. That's illegal, unprotected speech, because it directly leads to imminent lawless action. Similarly the wallet owner who signs and broadcasts an Ethereum transaction to send money to North Korea would bass the Brandenburg test because it obviously leads to imminent lawless action.
The validator who builds the block that includes an illegal transaction is an interesting question. On the one hand by building the block, one could argue that they're instrumental in putting carrying out the illegal transaction. OTOH one might argue that if the transaction is in the network (and priced appropriately) it almost certainly will get included on-chain eventually. Therefore the validator might argue that it's activity doesn't create any imminent lawless activity, because the transaction being in the mempool is already fait accompli. The validator is more like the reporter writing about a crime in the newspaper.
But what I'm nearly certain of is that building on top of a chain with a previously finalized illegal transaction is okay. It's certainly not illegal to talk about a crime that's already happened. The further a block gets away from the initial block, then the less imminent the illegal action becomes. SCOTUS has historically held a very high standard for Brandenburg, which is why it's not even illegal to advocate for genocide or the violent overthrow of the American government.
I have no reason to doubt that your credentials as a constitutional lawyer are impeccable.
> The further a block gets away from the initial block, then the less imminent the illegal action becomes.
This very plausible legal theory inspires incredible confidence.
As for how that theory will interact with reality, who knows.
The sort of software update I'm imagining is one which just zeroes the holdings of the government wallet(s), and continues the chain from just before they launched their attack.
If there's one group that the government care more about the finances of than taxpayers, it's companies. Destroying the wealth of these companies in their jurisdiction is an attack that can only be performed once, and provides no long term benefit, except for people outside their jurisdiction.
The submission you're describing requires a cryptographic proof of that validator submitting two or more existing invalid blocks that they signed. You can't just falsify that without their private keys, so what you're suggesting is not possible.
At the very least, for an individual actor, it would be much more expensive to acquire 33% of all ETH than it would be to acquire 51% of the Bitcoin hashrate
A common misconception here is that slashing happens based on what transactions you include or not. False. Slashing happens because of things such as proposing or attesting twice.