For the wallet to be useful, the person you are beating will either know who else needs to be beaten, can be compelled to withdraw their funds under duress, or in the case of a centralized counterparty, like a bank, can be trivially compelled by a government bearing a lawful order, to sign off on a money transfer.

If none of those means of getting you to pay work out, they can always leave you to enjoy your internet money in jail.

The issue is that they have no idea how much money you 'actually' have.

If someone threatens you with a wrench, you simply do what they ask you to do and provide a password to your "account" that conveniently doesnt have much money in it.

"yes officer! I have done exactly what you asked me to do. Here is all the electronic money that I own. "

Ok, but how does that protect ME from that $5 wrench?

You can setup a hardware wallet with plausible deniability[1]

[1] https://www.reddit.com/r/TREZOR/comments/2e8a9i/can_someone_...

And then they beat me with the wrench anyway for wasting their time. But I suppose the money's ok, which I'll need for hospital bills.

If they were going to beat you anyway, another layer of encryption was not going to help.