Although possibly inappropriate, I ended up laughing at the enormity of the above proposition from a purely functional perspective. I'm visualizing this veritable army of millions of civil servants in penguin suits who's only task in life is to track every move of every conceivable coin in an eternally changing market... keeping track of all that, and auditing all those transactions will consume more electricity than used for all the Bitcoin ever mined!
I wonder what's going to happen when they have to move from "looks good, on paper" to "how do we actually IMPLEMENT this?"
The only thing they can possibly do is just start lying about people's financial records, claiming they have "proof" of "tax evasion," clamp down on vendors accepting crypto, and start jailing this or that mark to be set up as an example (much like the guy in Michigan recently busted for making BTC profits on Localbitcoins.com) and given extremely harsh sentences.
This will instill fear in a lot of folks.
Like you said though. The task they set out to accomplish is literally impossible. That is, if enough folks are bold and creative enough to keep living free and utilizing free markets.
It would be such a mess... several countries around the world have already set themselves up to be "Crypto friendly" (Switzerland, Greece and Turkey come to mind), so there will always be available loopholes for those who decide to use them. Of course, then we could argue that governments would only aim to clamp down on "most" users (whatever that means) and let the smartest ones slip through the cracks.
It seems to me that the time for "absolute NO" has come and gone, and at this point the best governments can realistically hope for is playing the game in a "reasonable" fashion, in a similar way to how self-employment income is approached. Yeah, you owe it... and it's up to you to report it... and if you're driving a Lambo on claimed income of $18K a year, we're gonna audit the frak out of you.
I'm inclined to agree, @denmarkguy. I'm interested in what you said about Switzerland, Greece, and Turkey, though. What do you mean by "Crypto friendly"? I'll have to check out those countries.