[leifg]

In theory yes. If you have a list of addresses you want to “block” and you convince the biggest mining pools to play along you can “block” transactions to and from all these addresses. Whoever mines a new block gets to choose which transactions are going to be in it. If you just never include flagged transactions, no one is able to transfer terrorist money in and out.

There is still a possibility that one of the smaller miners gets a block once in a while but you’d already be able to significantly disrupt the terrorist organization. In addition to that you could also decide to fork off the chain before a block with any transaction and long term convince 100% of the miners to not touch any of the addresses.

Here is where reality kicks in: how do you get an agreement which addresses to block. There is more than one terrorist organization and certain miners might find the “censorship free money” argument more important than the existence of some of them. And judging by how often I hear the argument that BTC is “non-political” I don’t see that happening at all.

And even if you had consensus of what is good and what is evil, the counter attack of terrorists is fairly simple. Generate a new public key for every donation. This makes is a lot harder to track and would start an arms race between miners and terrorists.