You can't because #1 was recorded onchain, not offchain.
They sure were, but now my balance is with MtGox, not the blockchain. Your argument is that MtGox's systems are so inept that I can buy something off them and then send those bitcoins somewhere else (non-cartel). I'm pretty sure those programmers would be fired.I was expecting you to say that
You are confused.
And I know exactly what your confusion is, because I used to do techsupport.
Listen up. When the customer spends on the cartel, the offchain transaction would happen at that point. So the Bitcoin blockchain still shows the customer owning the coins. Whereas for your MtGox example, the Bitcoin blockchain shows MtGox owning the coins. So you are comparing two different things, apples-to-oranges.
It has nothing to do with ineptness once the coins are inside the cartel or MtGox. Both are managed correctly and no double-spends. The double-spend is due to the Bitcoin chain showing the customer still owns the coins in the cartel case, so customer can issue a Bitcoin chain spend again even while spending the coins in the cartel chain simultaneously. Whereas for your MtGox example, the Bitcoin chain shows MtGox owns the coins, so the customer can not issue a Bitcoin chain spend again.
In your 'cartel' situation, who controls the private key for the customer's wallet?
If it is the customer, then the cartel website cannot sign a spending transaction, and so cannot withhold it from the network, it would have to be send by the customer.
If it the cartel, then the customer cannot sign a double-spend transaction.
Sorry but you don't understand the technology well enough. The reason most readers dismiss my posts, is because they lack knowledge to ascertain how correct I nearly (as in 99.9%) always am if I've studied some matter for a sufficiently long time.
The attack as described in the OP is for example the customer issues a spend with his her private key to the cartel for example on the cartel's website or POS terminal. The customer would either give the private key to the cartel or sign in a client-side application provided by the cartel which would send the spend only to the cartel's server. Either case supports the attack. The masses do what they are told to do when visiting a retail website or storefront, as they just want to pay and be done with it. They don't care about your technological nirvana idealism. It is irrelevant to their purchase at that moment where they want their pizza and be on their way.
You raise an irrelevant point about double-spends (which incidentally I have also refuted in the preceding paragraph), because the offchain strategy was JoelKatz's idea and has nothing to do with the attack described in the OP. And I resoundly refuted JoelKatz's technical points as pertains to this attack.
This attack can't be disproven. I've thought out it for months and debated all comers in my Bitcoin : The Digital Kill Switch thread, as well in this thread. You can bet that none of the core devs will come here and debate me, because they know they will lose. And it is the sure way that any crypto-currency without perpetual debasement ends up as the government coin.
The only reasonable counter-point upthread was from DeathAndTaxes. Which I believe I also refuted because the cartel punishes competitors and thus takes a larger and larger market share over time, but everyone is free to make their own estimates on his point.
P.S. JoelKatz is apparently a Bitcoin developer, but not a core one.