“Why promote whistleblowers but ban blackmail?” To tilt favor towards us interested third parties. It gives us a better chance to bid on the blackmailer’s information.

I think your ascertain that legalizing blackmail would be a net-positive my be incorrect, for the following reasons:

1) It would actually encourage less overall information to come out. Victims of blackmail would not be able to go to the police for help with the situation, therefore they would have an option of recourse removed — raising the likelihood of them choosing other options: including payment of the ask.

2) It creates fear in members of the general society — this is not a concern if we’re talking about drug dealing or cheating, but there are many things not illegal/immoral that a productive participant in our society should be able to engage in with some expectation of privacy. A productive person spending more energy to hide the relatively mundance things they do not want made public for cultural/familial/etc. reasons (sexual fetishes, cigarette smoking, etc.) means less energy spent on creating value.

3) While none of the likely outcomes of legal blackmail you laid out are particularly concerning, there’s also nothing on that list I find positive. Furthermore, I think it is an incomplete list.

“In blackmail, however, what is being “threatened” is something
that the blackmailer does have a right to do!—whether it be exercising
the right of free speech, or refusing to patronize certain
stores, or persuading others to do likewise. What is being threatened
is not in itself illegitimate; it is, therefore, not possible to
call the “threat” an illegitimate threat.”

As others have pointed out, the trouble is that combining free speech with the right to voluntary exchange, two seeming inalienable rights don’t combine so well. It makes no sense to call blackmail voluntary exchange, even though the two have similar mechanics. All Block has done is poked a hole in the NAP. Now someone needs to repair the hole. Remember this the next time someone “Makes you an offer you can’t refuse.”

Incidentally, (2) it is the “relative rich” who get blackmailed, not the rich. Since the latter is a larger class, a great many more are impacted than you might think.

Cheers.

The strategic-bargaining counter-argument: illegality makes the blackmailer’s promise to remain silent credible and therefore worth paying for.

Another flaw is that legalising blackmail encourages entrapment, and a society fearful of entrapment is not a very open society.

I think Steve Sailer gave the right answer – the “problem” is that it cuts the lawyers out.

That said, there is one consequence that AFAIK nobody has mentioned. If you legalize blackmail, but (of course) you keep extortion by threat of libel illegal, then someone has to judge whether questionable allegations are true or false (That’s not the new part). Now the person who is primarily judging that fact is the blackmailer (That’s the new part). That’s bad news.

It would be hard to prove that the blackmailer maliciously misjudged an allegation as true (That’s not new about libel law). The blackmailer could easily claim it was an innocent mistake. The blackmailer also might threaten in such a way that the victim perceives a threat of libel, but can only prove a threat of blackmail.

So legalizing blackmail makes it easy to pass off extortion as (the now legal) blackmail.