Exactly. They write:

> “The danger is the creation of an electronic black market, similar to the cash economy,”

But how can they avoid it if Bitcoin does work like cash in many aspects and they have no control over it?

In short, despite what many seem to think ?? -> Anything they do / will do / or try to do is simply a hack. The problem they have isn't going away - they'll eventually need increasingly draconian legislation to monitor bitcoin transactions.

It will be (almost entirely) up to trust in the long run.

The problem that techies don't seem to realize...is that the system has always been about trust from the very beginning.

It was only within the past decade and a half that the IRS even acquired the ability to to spot discrepancies in returns based on filings from different taxpayers (due to the increase in e-filed return. Before that, enforcement relied almost entirely on random audits and tip-based investigations.

Everyone has a copy of the blockchain, the NSA has every email ever sent along with full copies of portions of internet traffic (if not all of it).

The NSA knows the physical location, email address and browsing history of nearly all US based bitcoin addresses.

At large enough amounts, the IRS routinely investigates large accounts no matter how they are held. For example, in cocaine and cash.

At some point you spend the money, and the difference in spending and taxes paid gets their attention.

And if the money is spent in same Bitcoins? It seems the only control they might have is when Bitcoins are exchanged to regular currency.

Not only when they're exchanged for regular currency, but for anything else conspicuous. The IRS regularly catches people underreporting cash earnings by noticing they're living way above their official means: someone bought two cars and a vacation home despite no significant source of income reported. If you buy the cars and the vacation home with bitcoin, it'll be the same deal.

To avoid scrutiny, you'd have to either not spend the bitcoin at all, or only buy inconspicuous things with it, perhaps intangible things like streaming-video subscriptions and videogames.

I thought the way these things normally work is that someone notices that your standard of living doesn't seem to match what they know of your income, and that news makes its way to the IRS (possibly via local law enforcement?).

These days this is quite automatible. Large purchases, like houses and cars, are public.

The IRS requires that you send them a form every year where you voluntarily tell them your income and sign it, swearing that it's true or risk penalties of fines or jail.

How is that not enough control?

As for cash and cocaine, you track the items that it's being spent on.

If you buy a burger with bitcoin, then, well, noone cares if you didn't pay taxes on that; but if you buy a car or a mansion with bitcoin (or bitcoin-derived resources), then the item is visible, and they can audit your income and purchases to trace the source of that money (and untraceable source = your problem).

They have gotten really good at finding money. Even employees at banks are rewarded by the IRS for turning in anything they think is suspicious--not just over 10K amounts-anything the minimum wage worker "thinks" is suspicious! I'm not bashing minimum wage workers--just pointing out low level workers can turn the IRS on you. Personally, If I came into a huge amout of cash. I would bury it, until inflation really gets moving. If you bury it, do it sober. True story: I know a guy who buried 800,000 grand in a PVC pipe--while intoxicated on a conacopia of substences. He woke up the next day and couldn't find where he bured it. When ever I drive by the house the guy lived in--I feel extremely sad; even though it wasen't my money--such a waste. What's even more interesting is the ex wife told the current owners of the house that there might be close to a million dollars on their property. The owners did not believe, or even do some test digging? Sometimes, people do tell the truth. I wish I was never told that story.