Question around Regulating Algorithms on the Blockchain

I've been thinking about challenges to adoption, particularly at the government level, and feel that any technology that could reduce frictions around transmitting child porn, or enabling human trafficking, is going to be a tough sell for government acceptance and adoption.

I believe smart contracts are all open source, correct? And transactions are open as well; if so, could governments effectively regulate the blockchain by regulating the algorithms individuals can use for transactions?