can we stop this?
Yes, but not by negotiating with every fool who attempts it, for there are far too many fools in the world. I've personally talked two startups out of similar business models in the past.
We can stop this by making sure that its not viable, by tweaking our practices and the ecosystem to be an environment that things like this just can't work in. This means: Anonymous mining, Discouraging address reuse,
coinjoin, etc. Importantly, people need to step up and fund the development of privacy tools. Today there is no business model for decenteralized privacy tools that people can use casually and thus pervasively.
We must vote with our wallets not our spending, but how we choose to transact and what developments we fund. As a spending group the people who really realize the importance of privacy and fungiblity will always be a small enough minority that short-sighted business people will find it all too easy to go without their business.
I agree and support everything you said here, Gregory, but I'm afraid that might not be enough.
Working around balcklists is feasible, through the means you cite. But the threat here are not blacklists, the threat are
mandatory whitelists.
You may coinjoin your coins as much as you want. If you want to use them in "the land of the free" you'll have to give away your freedom and privacy by declaring them to Big Brother. Otherwise your output might just be frozen by the "law abiding merchant" that receives it.
Mixers are not enough to fight back. But I fail to see alternatives.
I know you and many other bitcoin developers have brilliant minds... I hope you manage to come up with a solution.
A setup where you know the address you send money to... but where no one can determine where the funds in a given address came from.
This has downsides of course; you can't prove you sent a payment, only that payment was sent.
But developing this scheme seems worthwhile enough, as it will stop this nastiness cold.
EDIT: Frankly, the way bitcoin works, even if such an option was available, there will always still be an option to use direct payment, and the tendency will be to force users to do so. It's looking like we need a new cryptocurrency where direct payment isn't even possible.