I don't understand how your proposal is tenable. There's nothing preventing the fraudulent party with their blocked Wallet A to just create a new Wallet B, transfer funds to that, and then use it.

If you're a merchant, you'd have to do origin tracing of the funds in all the wallets you accept. It's not as simple as just creating a blacklist, that would be very easily avoided. The only thing that might work is getting all miners to refuse to accept transfers from the "bad" address to ANY other address (good luck, that's never going to happen).

Your list could get pretty big, but I think it's a decent idea.

Some merchants don't give a shit, AKA "it's your own fault if you get robbed," but lots of people don't like to help thieves.

It's been a while since I looked at the protocol -- can you "reject" a payment? Or return it?