Rav Shaul Israel in Amud HaYemini has a long and beautiful analysis of the halachas of Smicha and the renewal of the Sanhedrin. I will bring here some of the issues he discusses. (Much of this is taken from a series of shiurim Rav Yosef Carmel put together based on the thought of Rav Shaul Yisraeli Zt"l)
The Rambam write in Mishne Torah (הלכות סנהדרין ד:יא):
If there is only one person in the Land of Israel who can give Smicha, then he sits two others next to himself and gives Smicha to 70 [sages] all at once or one after the other. After that, himself and the 70 [sages] can establish a Sanhedrin and give smicha to other courts. It seems to me that if all of the sages in the Land of Israel agreed to appoint judges and to give them smicha, then the smicha is valid and they can judge Dinei Knassot (monetary fines) and also have the authority to give smicha to others. If what I say is true then why did the sages express distress over the possibility of smicha ending and Dinei Knassot being forgotten? [They were worried] because Israel is dispersed and it is impossible that all will agree regarding reestablishment of smicha. If you have one person who already received smicha, you do not need everyone's agreement and that one person can judge Dinei Knassot for everyone since he received smicha from a beit din. This issue needs to be decided.
There are several difficulties with this Rambam. For one, he does not seem to have a source in the Gemara (he says "It seems to me"). See following post regarding our ability to pasken like the Rambam without a source in the Gemara. Further, the Rambam himself seems to doubt his own halachic solution to the problem of smicha ending with "this issue needs to be decided." The Rambam also attempts to explain why his solution was never used but his argument that gathering the sages together was impossible needs further explanation. Could it be true that such a project would be logistically impossible?
The Rambam deals with some of these issues in his commentary on the Mishne (סנהדרין א:ג):
I think that if there was agreement from all the sages to appoint a person in the yeshiva and make him the head, that as long as this occurs in the Land of Israel as we explained before, then that same person can establish a yeshiva and will have smicha and have the ability to impart smicha to whomever he wishes. For if you do not say this, then the re-establishment of a Sanhedrin will be impossible since you [otherwise] need every one of them to have smicha without any doubt and Hashem has already promised to return of the Sanhedrin when He said "I will return your judges as in earliest times." Now, if you say that the Mashiach will appoint these judges even though they do not have smicha, then this is contradicted, since we have already explained in the introduction to our book that Mashiach will not add to the Torah nor remove anything from it. Not from the written, nor from the oral Torah. I think that the Sanhedrin will return before the revelation of the Mashiach and this [reestablishment] will be one of the signs [of Mashiach] that "I will return your judges as in earliest times, and your counselors as at first and then you will be called city of justice." This will without a doubt happen when Hashem will ready the hearts of men and they will increase good-deeds and their desire for Hashem and His Torah will grow and their integrity will increase before the coming of Mashiach as is explained in the verses.
If you bear with me I will bring another passage from the Rambam's commentary on the Mishne (בכורות ד:ג):
Know that the concept of an expert is of one who has Smicha. That is, a person who has been tested and tried and found to be of great wisdom. If those who tested and tried him were a Beit Din, he has the status of "Mumche Beit Din" (Expert of the court). If on the other hand, he became publicly famous for his wisdom without the testing of the Beit Din, then he is called a "Mumche LaRabim" (Expert of the public).
And even when he has smicha from a beit din, he can not allow the eating of a firstborn until the Beit Din gives him explicit permission to do this and say to him that he can permit the firstborn cattle through a "moom". And we already explained in the beginning of Sanhedrin that a Beit Din does not mean any court but rather one that has Smicha in the Land of Israel, whether it has a tradition of smicha or it was established through the agreement of the Jews in the Land of Israel to appoint [an individual] as head of the Acadamy. This is because [only] the Jews in the Land of Israel are called a congregation and Hashem has called them the entire congregation even if there were only ten of them. And we do not worry regarding anyone from outside of the Land as we explained in Horayot...
What we see here for the first time is the introduction of a new concept, that of the mumche/expert. What is the difference between a musmach and a mumche? The gemara in Sanhedrin casts some light (Sanhedrin 13b):
What is the smicha of the elders? Rabbi Yochana said: Smicha is to call them Rabbi (Rashi) ... Rav Acha to son of Rabba said to Rav Ashi: Do we give semicha using our actual hands? (that is to say, do we actualy have to physically place our hands on the person receiving the smicha?) [Rav Ashi] answered him: We give them smicha through a name, we call them Rabbi, and we give them permission to judge fines. (Rashi - since it is written 'Elohim' which implies expert judges, and these are Smuchin)
In other words, the concepts of musmach and mumche are overlap. If we combine this with the Rambam above, we can understand the difference between a Mumche Beit Din and a Mumche LeRabim. A Mumche Beit Din is simply an expert who has been tested and approved by the Beit-Din. There are two components to his authority, his wisdom and his received status. Now lets analyze another Halacha of the Rambam (סנהדרין א:ה):
Any city that does not have at least two great scholars - One who can teach in all areas of the Torah and one who knows how to hear and knows how to ask and answer. We do not convene a Sanhedrin [in such a city] even if it has thousands of Jews [living in it].
Rav Shaul Israeli Zt"l learns from this that if two such sages exist, then they can include a third of lesser wisdom to rule with them. This is actually an explicit halacha in the Rambam (סנהדרין י:ח). This is difficult since we know the high standards that one needs to meet in order to sit on a Beit Din, much less a Sanhedrin. But according to what we explained above we can understand the Halacha. The Rambam in the beginning of Moreh Nevuchim explains three meanings of the term 'Elohim' (This is the term from which we learn the Halachot of Judges). The first is its Holy use and we pronounce it Elokim. The second is a judge and the third is a ruler or leader. In other words, the second meaning of the word can only be achieved through acquiring Torah wisdom. The third can be achieved by receiving authority from those who can bestow authority. Thus a Beit Din can confer the status of 'Elohim' even on one who is not of the proper criteria in and of himself. This is really the whole nature of Musmach vs. Mumche. The Musmach is granted authority and has an added status of leader.
Now that we understand the meaning of Smicha, we can also understand why we can only renew Smicha in the Land of Israel. Rav Israeli explains that this criteria is not only geographic but rather one of authority. The ability to enforce law is what allows Jews in the Land of Israel the ability to renew Smicha and it is only in the Land where our sovereignty is legitimate. Governmental authority coupled with sages of great wisdom are the two conditions necessary for the renewal of Smicha and these two things together are only possible to achieve in the Land of Israel.
What I have brought here is only a short review of the Rambam's shita regarding the renewal of Smicha. This is by no means a complete treatment of the topic. I will try to write more about it in another post. I hope that this sheds a little light on some of the issues involved in the renewal of Smicha.