If authorities obtain the cooperation of either the sender-to-you, or the receiver-from-you, they can find out who they thought they were dealing with, and why.

If authorities obtain the cooperation of either the sender-to-you, or the receiver-from-you, they can find out who they thought they were dealing with, and why. You should probably assume that all businesses/exchanges with fixed addresses and traditional bank accounts will cooperate with authorities. And, some fair proportion of others, as well, including even those involved in explicitly illegal activities (who may be informants/plants, from the beginning or once discovered). So if 'your' Bitcoin is received several hops from any of the known nodes/addresses, and after your spend goes several hops before arriving at a known node/address... you may be safe. That is, if you're small-scale, use Bitcoin only with others who avoid reporting requirements, and no big priority investigation peels back the links one by one using all the tools and pressure available to the state. And, if other security compromises and traffic analyses don't prematurely reveal your correspondent nodes. But ultimately, a financial-enforcement agency might be running their own operation much like blockchain.info... with 1000X the resources, and various extra private sources of information. Every error by any participant -- mixing different outputs, client bugs revealing identity correlations, announcing pubkey-to-identity associations, matching time-online with time-of-spends, providing historic data after being targeted by an audit or prosecution, etc. -- would constantly improve the map of balances-to-real-world-entities. And like playing a game of 'minesweeper', a few lucky hits by enforcement, even years down the road, might suddenly illuminate large portions of the network. The blockchain never forgets! And, a few policy changes could supercharge this map. Legislate that if you're an above-ground operation, you must register your public keys. Any balances received from unregistered/tainted addresses are subject to forfeiture (or a punitive excise tax), but balances received from registered addresses are OK. Bitcoin's public blockchain makes this possible, and it's not possible with cash. All the above-ground businesses and users then register their addresses, and stop accepting -- or quickly report under penalty of law -- received funds from unregistered addresses. The gaps in the enforcement map then shrink pretty fast. You might also then have, within one blockchain, both 'dark' and 'light' balances that usually don't mix and aren't 1-to-1 interchangeable. To spend your 'non-taxable' coin on things like food or rent, you'd have to swap it for registered coin, through some legitimate-looking (and thus likely tax-paying) transaction. That's just money laundering, and it's no easier and probably much harder than with real cash businesses. (Are you sure the person willing to give you 'light' balances in return for your 'dark' balances is not and will never be an informer?)