Then like other Local Currency Laws, People DO have to pay the cash equivalent of taxes on those currencies...
You are required, by law, to pay taxes on any and all transactions you undertake. That includes trade, barter, etc. If I give you a truck and you give me a tractor, we have to pay taxes on those transactions, legally.
However, the ability for the government to identify those transactions and then come after you for failing to report and pay taxes on them is low (or none). That's what's scary to the Government about Bitcoins, that they (currently) have little to no way to identify the transactions and the participants to allow for taxation.
However, that doesn't eliminate your legal obligation to report and pay taxes on your transactions. Whether or not you do is up to you.
And if people really want to see BTC kept legal.. They will encourage each other not to use bitcoins for illegal activities..
It frankly shouldn't matter. Cash is used for illegal activities, doesn't make Cash itself illegal. There are limits on cash transactions, but that doesn't stop people from continuing to use it.
