> It's not that the structures are inherently bad, it's that such structures are, philosophically, the exact sorts of things that many early (and current) proponents of crypto wanted to avoid. In that sense bitcoin hasn't failed as a system in & of itself, but it has failed to achieve the philosophical goals of those people.

I'm not sure that's quite true. Decentralization was a goal, but it wasn't necessarily the case that that decentralization had to pervade all use of the currency. The values of the ecosystem are that more decentralization is better - that's true, so Satoshi et al would have preferred to make decentralized transactions sufficiently scalable not to require centralized exchanges, but I don't think that it has fundamentally failed in its goals just because a lot of transactions happen in bank-like entities. The point is that users have the power to do it in a decentralized way.

> Bitcoin & crypto also might not be sovereign in origin but they have plenty of sovereign influence, basically as much as any sovereignty wants to impose on it. Especially as entities like the SEC & IRS come to terms with it, it will be just as vulnerable to government control as fiat currency. This is especially the case because any wide-spread adoption will require adoption by large financial institutions, which cannot avoid regulatory regimes of their local jurisdictions. From the US government's standpoint, US citizens holding bitcoins is not much different than US citizens holding Euros. How that money enters into the US economy & interacts with US financial institutions or changes hands from person to person are basically subject to the same rules & regulations. If you're conducting a a transaction in excess of $10,000 then whatever mechanism facilitates that will still be subject to CTR's, and any "suspicious" transaction of lower limits will still be reported, by law, to the government.

This just isn't accurate. It may in fact be vulnerable to some level of government influence, due to the fiat gateways involved. But it's just not true that it's equivalent to fiat in that regard. Cryptocurrencies will never be as regulable as fiat is, and I think it's pretty clear that that's true, given how widely they've been adopted by cyber criminals and darknet markets. Governments have been completely unable to prevent their use in this way, and will continue to be unable to do so.

It's true from a legal perspective that the government views it just like foreign currency (actually, in the US, they treat it like property, not currency, but we can ignore that for now). But from a technical perspective, its very very different. The technical differences make it very difficult to regulate. Think about music. When music got digitized, its legal status didn't change. It was just as illegal to download an MP3 as it was to steal a CD. What changed is the topology of the technical landscape underneath it, and that is what made all the difference.

> Basically, if you want to convert bitcoin to the local currency to buy something, you'll need to use some sort of off-ramp that will be a regulatory bottleneck. Want to build a "shadow" economy purely driven by crypto exchange? Well, you'll still have to deal with the IRS knocking on your door & saying "You have things of value that you are performing work to receive. We don't care what currency or form you received them in, you received things of value. Give us our cut."

I think you are under-weighting the significance of friction. In principle, sure, the IRS might do that - but we don't live in principle. We live in a physical world with resource constraints. If you make something harder to accomplish, it may no longer be economical to do it. Collecting income taxes from people that keep their money in crypto who don't want to pay them will never be as efficient as doing so in the fiat banking system.