My problem with this idea is that inside of the crypto space there is just no distinction between good and bad source money. There are plenty of illicitly acqu

My problem with this idea is that inside of the crypto space there is just no distinction between good and bad source money. There are plenty of illicitly acquired funds within the crypto space, that never need to cash out and never need to risk an identity being tied to the holder. The whole decade of crypto-native scams, phishing sites, rug pulls, autonomous fee gathering services that help actual illicit transactions, all of that crypto is still there and fungible and usuable. Most of the money laundering discussion has wrongfully assumed that people care about fiat currency. (This is worth saying again because people weren't ready to hear that 5-8 years ago, it was too abstract of a concept as people had tied their national identity to desire of their national currency, but more people have decoupled those concepts now and understand how crypto can be convenient for general goods and services if desired.) To many people this is just like a high score, they just accumulate the crypto. Hackers were doing more for less for a very long time. Defacing websites for street cred. But make no mistake, its a high score that absolutely can be laundered and converted to fiat at any point, its just it doesn't have to be, and there is no way to distinguish that from the licit transactions. Because what is licit also has no legal consensus. Circumventing one nation's capital controls, doesn't make it an illicit transaction in another nation, for example. A third nation seizing crypto and auctioning it off doesn't magically make the crypto transform from illicit to licit to everyone. Someone just following transactions on a block explorer without knowledge of the news articles from the third nation can just mistakenly believe that the auction winner is still the original hacker, because they didn't even know the seizure and auction occurred and just assumed the hacker was "running" from people watching the blockchain. These misguided detectives will try to alert the first exchange that the funds hit, not even knowing the whole legal issue is over. There is no way to distinguish between licit and illicit funds in a blockchain, many of which either never move or just participate in onchain things because its fun. Those funds have all gained in value too. Playing around with your high score money in fun NFTs is an option, no different than pay to win in video game currency. And then there is everyone else in the NFT market which outnumber any of the above. There is just no distinction or intention that you can assume. We've relied on the state to create these distinctions over the last 60 years - primarily at the border and on the electronic financial system - stigmatizing money and saying some kinds of transactions are approved while others are not, the state has lost that power and thats just a reversion to the mean where the people-run electronic financial system more closely matches the cash financial system that predates the licensed bank-run electronic financial system.