Yeah definitely more difficult, but it depends on the storage mechanism. But I suppose even if you simply had a private key hidden in some random folder or written down somewhere (there are more secure ways - one is breaking a key into multiple parts and spreading to separate people), it would be hard to locate or identify.

It also depends on what possible legal action those parties might have taken against them for not complying with a disclosure request on those funds.

So basically: "we can't find your money so you're going to jail unless you find it for us?"

I was talking to a friend about encryption the other day and that was his salient point. Unbreakable key? Break it or go to jail.

"Break it or go to jail" is already established law that pre-dates computers ("open this combination safe or go to jail"), but courts have generally held that this law also applies to encryption keys.

And if the contents of the safe are written in code, or some made up language that the courts don't understand, can they compel you to translate them?

Yes, they can. This has also been true for hundreds of years.

Physical security is an integral part of information security. But if governments start doing things like that, what kind of country are we living in?

USA and UK are already doing it:

[1] http://news.cnet.com/8301-31921_3-57364330-281/judge-america...

[2] http://www.bbc.co.uk/news/uk-england-11479831

As always, relevant XKCD: http://xkcd.com/538/

I suppose the bitcoin ethos of a decentralized network - with no single vulnerable point of attack - breaks down once you consider that until you can buy groceries, pay rent, and just generally use the currency everywhere, there's always the last point of vulnerability: wherever you convert it to "actual" money.

But maybe that's an unfair assessment.

For a non-governmental currency that hasn't yet had its 5th birthday, I think bitcoin is doing decently well in terms of merchant acceptance. My personal opinion is that broad merchant acceptance will only come after it is widely used for investment/asset protection (if ever, of course). One indication for this idea is the magnitude by which forex volumes dwarf actual GDP. But it's all speculation :)

Actually seizing the Bitcoins would be very difficult, but there is (AFAIK) nothing stopping the Courts ordering a person not to deal with or dispose of the Bitcoins (or else be in contempt of court).