When we compare Bitcoin to fiat there are a couple of differences which I think could impact us in the future:
1. Bitcoin's will become more tainted over time
2. This pushes governments to become concerned and impose more KYC requirements
3. Eventually most Bitcoin will be tainted to a degree. If we look at this research concluded by economist Rogoff[1]:
Quote from: Independent
Rogoff’s estimate of the share of currency held by consumers for legitimate purposes is even more suspect. He relies on surveys of consumers, who report holding 5 to 10 percent of all outstanding currency. Then, by assuming that any cash that the surveyed consumers do not fess up to holding must be held for nefarious purposes, he concludes that 34 to 39 percent of all currency in circulation is used by criminals.
34-39% in fiat currency is a huge of money. Bitcoin is further limited by its cap of 21 million which means that if Bitcoin becomes the mainstream currency used by everyone the share of tainted money would be higher because of the cap with fiat more money is printed in the fiat currency which reduces this amount. We already know that governments require anti-money laundering evidence for many transactions outside of cryptocurrencies such as buying a house requires proof that the money was earned legally and not through illegal activities. Exchanging money on exchanges requires identity which they probably look at your salary reported by the government.
We have seen that in the last couple of years governments have started to require KYC more, and I believe that as the share of tainted money increases, government regulation and intervention will also increase.
I am not saying it is a problem of Bitcoin because I think it is unfair and most of us have probably touched money that has been used in criminal activities without knowing it. That is the nature of cash but cash cannot be tracked as easily. Blockchain works against us in this way, providing an easy way to discover tainted coins. The government could use this as propaganda if it wanted to and convince people that cryptocurrencies are bad because a good portion of them are used in criminal activities but not just this because they can prove it and further convince others that btc is "bad".
How do we prevent this type of propaganda attack or invasion of privacy?
[1] source: https://www.independent.org/publications/tir/article.asp?id=1289