Yeah you can track all transactions, but any blacklist system you come up with is likely to be defeated because of the decentralized nature of the coin. i.e. people can just ignore the blacklist. Also you can easily taint other people’s wallets by just sending them some bitcoin:

A: Recipients can’t refuse transactions. I can go send all of my friends a few dollars from my wallet that’s on the government list and oops now all of our money is tainted. Do we all just consider our money to have disappeared? No, most likely we continue to live our lives and ignore the government list.

B: A huge number of people will accept free money even if it puts them on some kind of list.

C: Even if one of my wallets is on some kind of government list I can still transact with anyone willing to transact with me. A tainted wallet is still useful. For example I am perfectly willing to sell my motorcycle to Bob if he pays me in Bitcoin even if it puts my wallet on a government list. I know that Nancy and Pedro will accept coins from tainted wallets and I want to buy something from them. All of these transactions take place without consent of the government.

Cash is useful yes. But one big advantage: a SWAT team can break into your house and take your cash away with guns.

Bitcoin, if the key is encrypted, cannot be taken away by force. I can share my password with my family/friends and even if I’m arrested my mom can still use and move my money for me.

You can come up with all kinds of systems to make peoples lives more difficult when using bitcoin yes. But at the end of the day the power to forcibly take someone’s money is missing and so all these systems will ultimately not be enough to prevent it being used as money.

>Bitcoin is not money.

Anything is money if you use it as a medium of exchange.