Watching!

I love the way you posed your question(s), bitplane.

~Bruno~

No government can simply decide to insert its own rules or restrictions into Bitcoin as it exists today and a fork different enough to allow it would be almost unrecognizable as related to the original client. It would be much easier for them to simply follow Canada's example and issue their own digital currency and then outlaw the use of Bitcoin. This wouldn't necessarily cause it to "fall out of favor" but would force legitimate businesses already accepting it to decide whether or not they wanted to fight or flaunt the applicable laws. If anything, I think this would increase Bitcoin's appeal as an underdog/Robin Hood player although one would have to use more discretion with transactions.

The politicans decisions apply only to those who obey them

And the bitcoin economy that is currently emerging is an economy where politicians and governments and their corporate allies have not role to play.

EDIT: All the wonderful tools that emerge nowadays thanks to internet are tools that allow people to organize themselves without the State. So yes, expect the State to fight back. But its fight is doomed to fail.

I can imagine the U.S. Congress passing a stupid law and trying to kill (or at least imprison) those who break it.  Liberty is a powerful thing, and U.S. politicians do not like it being in the hands of the people.

It's simple: those who want to, can follow their rules and those who don't want to, need not follow their rules. Besides there are enough tools available to hide your "illegal" use of Bitcoin that I think no one will ever follow any rules other than the agreed upon Bitcoin rules they have to follow if they want to use it.

I do think if they ban the use of Bitcoin in a certain country people in that country will have a slightly harder time getting some which may result in a price drop due to a diminished demand especially if that country is one where most of the current demand comes from.

I said assume it catches on and replaces PayPal or Visa. At this point governments will regulate it, and they *may* do this by adjusting the rules of the network. For example they may publish a blacklist of known money laundering accounts and say that a valid block must not contain transactions from accounts in that blacklist, or maybe they'll go for a whitelist approach and force people to register their addresses for tax reasons, maybe they'll put some central override in for returning stolen coins. Whatever those rule changes it will create a regional fork the block-chain, legitimate merchants in the affected region won't be able to accept vanilla BTC and this will fuck with the economy.

As with any changes to the bitcoin protocol, you have to have more than 50% of the hashing power accepting those changes, otherwise you're just wasting electricity...

Yeah. There have already been forks with little power or interest. They could have stupidly called themselves Bitcoin also. 

Also, even a majority of miners playing by new rules won't change the fact that merchants will still want the real thing. Bitcoin isn't valuable because miners burn up energy mining it, it is valuable because merchants will give you something you want for it.

If they really want to, they'll have that 51%, "it's to protect the public", so they'll say.