I'm not sure I agree that OCs argument was focused on knowing that you were hosting illegal material that is encrypted. I'd argue that no-where in jiggawatt's comment is that argued. I think that's your argument, which is fine, and I agree with that. I also agree that you can be compelled to remove data, encrypted or not from your servers through lawful orders and if your system is designed in a blockchain like manner where it is not possible to remove illegal content, that's an even bigger issue.
My point all along, is that Google is not liable for someone uploading previously encrypted blobs of illegal content to Google Drive. And even more so, Google isn't liable if someone uploads illegal content to Google Drive that isn't encrypted. Google simply needs to remove it and follow the correct processes if reported / detected.
Could you make an argument for either that theoretically they could be? Sure. But in reality, no, they are not liable.
This is law due to Section 230:
> Section 230 of the Communications Act of 1934, enacted as part of the Communications Decency Act of 1996, provides limited federal immunity to providers and users of interactive computer services. The statute generally precludes providers and users from being held liable—that is, legally responsible—for information provided by another person, but does not prevent them from being held legally responsible for information that they have developed or for activities unrelated to third-party content. Courts have interpreted Section 230 to foreclose a wide variety of lawsuits and to preempt laws that would make providers and users liable for third-party content. For example, the law has been applied to protect online service providers like social media companies from lawsuits based on their decisions to transmit or take down user-generated content.
https://www.congress.gov/crs-product/R46751
https://www.eff.org/issues/cda230
Also, the blockchain problem already exists. I've linked some commentary about it.
https://ethereum.stackexchange.com/questions/94558/what-prev...