user135299: Censorship meaning: Only government approved addresses are allowed to have their transactions added to the blockchain.
Scenario: Miners are centralised within a geographic boundary with significantly cheaper energy and more processing power making competition impractical. The government of this geographic boundary now comes to the mining company and says: "Here's a list of approved addresses, if any other addresses are allowed to transact we'll put you all in jail"
From my understanding this is a possible scenario although I am uncertain about the likelihood of this happening and the incentives that might lead to this or would prevent this from happening. What is your understanding on these incentives? Is this a problem or is it unrealistic?

user85: 
Scenario: Miners are centralised within a geographic boundary with significantly cheaper energy and more processing power making competition impractical. The government of this geographic boundary now comes to the mining company and says: "Here's a list of approved addresses, if any other addresses are allowed to transact we'll put you all in jail"

This would not work.
Miners must mine the blocks that users want them to mine. If they don't, users won't buy the bitcoins mined in those blocks. Users believe that censorship resistance is the value proposition of bitcoin. So they would have no interest in buying bitcoins mined in blocks enforcing effective censorship.
Exactly how this would play out could vary based on the exact scenario you imagine, but one thing that could happen is that users would agree to change the mining algorithm. Nobody in the regime that was trying to enforce censorship would bother buying ASICs that implement the new algorithm since they know that if they can't censor effectively they'll be in legal trouble and if they can censor effectively, their ASICs will be worthless.
In short, miners that destroy bitcoin's value proposition render their own ASICs worthless.

user135299: I will try to combine both answers by Hugo Franklin and David Schwartz with my thought process in the hope that this could add value to others.
The scenario of geographically centralized Bitcoin miners that are censoring transactions is one that is unrealistic for a multitude of reasons.
Bitcoin mining is permissionless so anyone can participate, i.e. compete.
Not only that, but there is lots of energy that is not being used due to expensive transportation which Bitcoin does not need. Effectively not only can anyone compete, but there are many people and places for whom it will always be worth it to compete.
So it's already unlikely that this part of the scenario would happen but suppose it did.
Any attempts at censorship would lead to the censored addresses paying higher transaction fees to incentivise miners to include their transaction. So effectively the more you censor, the more competition you invite. This makes the success of the censorship even less likely.
Summarised: The permissionless nature implies that centralization of the mining would be extremely difficult to achieve, once achieved it would once again be virtually impossible to continually enforce censorship, which, in the case it somehow still does work out, would be entirely self destructive.

135299: <p>Censorship meaning: Only government approved addresses are allowed to have their transactions added to the blockchain.</p>
<p>Scenario: Miners are centralised within a geographic boundary with significantly cheaper energy and more processing power making competition impractical. The government of this geographic boundary now comes to the mining company and says: &quot;Here's a list of approved addresses, if any other addresses are allowed to transact we'll put you all in jail&quot;</p>
<p>From my understanding this is a possible scenario although I am uncertain about the likelihood of this happening and the incentives that might lead to this or would prevent this from happening. What is your understanding on these incentives? Is this a problem or is it unrealistic?</p>
 85: <blockquote>
<p>Scenario: Miners are centralised within a geographic boundary with significantly cheaper energy and more processing power making competition impractical. The government of this geographic boundary now comes to the mining company and says: &quot;Here's a list of approved addresses, if any other addresses are allowed to transact we'll put you all in jail&quot;</p>
</blockquote>
<p>This would not work.</p>
<p>Miners <em>must</em> mine the blocks that users want them to mine. If they don't, users won't buy the bitcoins mined in those blocks. Users believe that censorship resistance <em>is</em> the value proposition of bitcoin. So they would have no interest in buying bitcoins mined in blocks enforcing effective censorship.</p>
<p>Exactly how this would play out could vary based on the exact scenario you imagine, but one thing that could happen is that users would agree to change the mining algorithm. Nobody in the regime that was trying to enforce censorship would bother buying ASICs that implement the new algorithm since they know that if they can't censor effectively they'll be in legal trouble and if they can censor effectively, their ASICs will be worthless.</p>
<p>In short, miners that destroy bitcoin's value proposition render their own ASICs worthless.</p>
 135299: <p>I will try to combine both answers by Hugo Franklin and David Schwartz with my thought process in the hope that this could add value to others.</p>
<p>The scenario of geographically centralized Bitcoin miners that are censoring transactions is one that is unrealistic for a multitude of reasons.</p>
<p>Bitcoin mining is permissionless so anyone can participate, i.e. compete.
Not only that, but there is lots of energy that is not being used due to expensive transportation which Bitcoin does not need. Effectively not only <em>can</em> anyone compete, but there are many people and places for whom it will always be worth it to compete.</p>
<p>So it's already unlikely that this part of the scenario would happen but suppose it did.</p>
<p>Any attempts at censorship would lead to the censored addresses paying higher transaction fees to incentivise miners to include their transaction. So effectively the more you censor, the more competition you invite. This makes the success of the censorship even less likely.</p>
<p>Summarised: The permissionless nature implies that centralization of the mining would be extremely difficult to achieve, once achieved it would once again be virtually impossible to continually enforce censorship, which, in the case it somehow still does work out, would be entirely self destructive.</p>
