Even if that's the case, how do you convince the network that the shares need to be invalidated? How do you do that in a way that can't be faked?

That sounds a lot like another set of private keys to me. We already know those are vulnerable to being stolen.

Because the protocol is transparent so you can trace what happened?

Ebay and Paypal solve 60million disputes a year using software.

http://techcircle.vccircle.com/2011/02/08/ebay-paypal-solve-...

I am not saying I know how to do this just saying that I don't think it's going to be as hard as some might thing. But sure I could be wrong.

And keep in mind. No system is perfect. Neither is the crypto-protocol. But it doesn't need to be. It just have to be good enough.

Just because you can trace how shares/money moved doesn't mean you can convince the rest of the network that the movement was improper.

This doesn't meet any sane definition of "good enough". It gives up a bunch of protections for no real gains.

Perhaps perhaps not. It seems pretty early still to say anything with certainty.