> The record is kept

It is kept in the same sense that you can draft a contract declaring you the owner and supreme ruler of the moon.

> in fact the government needs to submit to the blockchain's laws to move any coin around

No, it's the opposite: Everybody moving around coins has to submit to applicable laws – or face the consequences of violating them.

I don't think you understand how the Blockchain works or what the proper concept of a finalized payment is.

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.

This becomes obvious when you consider that the government auctions the coins they seize. They either have to give the keys to the buyer or create a new transaction on the chain.

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 the keys are not accessible, then they are totally powerless to do anything at all.

If you truly believe that, I don't think you understand how law enforcement works.

I think you need to elaborate on this. Law enforcement can enforce the things they have power over, like putting someone in jail. But they do not have power over the blockchain and they cannot reverse a transaction.

Governments can put a blockchain account/UTXO on a sanctions list and make it a crime to accept payments directly or indirectly funded from that account.

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.

It's a tool, but not a silver bullet. Mixers exist, for example. But that's not even the main point. The key holder has the ultimate power to simply throw away the key. There is no recourse for that.

> It's a tool, but not a silver bullet. Mixers exist, for example.

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?

Not talking about coin origin are we.

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.

What do you think a government would do if the private key was forgotten and not backed up?

The same thing it would do if stolen physical cash turns out to have burned up in a fire or lost at the bottom of the ocean.