You're very naive if you think blockchain technology wouldn't become more privacy-friendly to the extent that governments trying to have power over it practically need to give up because it simply would become economically infeasible for them to do that.
Sure governments can't easily control P2P transactions but as soon as you need money to pay taxes, rent, bills, groceries... cryptocurrencies won't take you very far, especially in a country that's banned them entirely.
If it is a corrupt country, why will the ban be effective? Even asking how they will ban it is an interesting technical question, people would have to be cut off from the internet and anything that can run linux.
I live in Australia, and was interested in buying a privacy oriented cryptocurrency the other day. It was an interesting thing to realise that the government can't stop me in the usual way (regulatory pressure on the exchange to not let me trade) because I can buy ETH then swap that on some shady foreign exchange for what I actually want. Nothing illegal going on there as far as I'm aware, but unless they send in thugs to cut my internet connection there isn't a lot the government can do to control my actions without spending serious money on actually sending people to make me do things I don't want to. It is a nice change of pace from most assets.
Eventually there someone is going to figure out zero-knowledge proofs enough that the tax office can't prove who owns anything or if a capital gain was made. That is going to be an extremely interesting development.
And, notably, crypto makes it easy to do this years after-the-fact by examining the public ledger. At least if you buy contraband with cash someone would need to compromise the seller or surveil the transaction in real-time to catch you. If you're transacting crypto in a state where transacting crypto is illegal, you're one op-sec failure away from your wallet being linked to your true identity and revealing all past transactions.
The problem is not the technology. If you want to use crypto for normal daily stuff you need to spread it among poeple. And the more you spread it among people, the more people will want to regulate it(normal people, users). Because they will not want to lose money or get caught in some stupid crypto schemes
I think education is the key here. Scams will always be there just as they are with fiat money. Crypto makes it easier for scammers, sure, but regulation can only make it a bit harder.
The only way to stop getting caught in schemes is to be educated about how crypto and economics work in the first place.
I'm not talking about EVM-bytecode level or keccak256 implementations of course, but a general understanding of what is what.
How do you want to educate people about crypto if it's still very hard to educate them about normal money?
Crypto is not going to work in the sense the original authors envisioned it. It is trying to solve social problems with very poor technology. Social problems you want to be solving differently to be successful
how do you regulate crypto in the corrupted country with corrupted govt? How people want to regulate it this way in a such country?
Your example makes sense in countries like Canada ( till 2021 ). Who knows when US or Germany or other west country will start to play against their citizens like in Canada?
I think probably faster than later because it goes into comunist like states direction where country want to run every citizen life ... like it happened in Poland after II-WW
All cryptography is vulnerable to a technique canonically called "rubber hose cryptography," which is where you beat someone with a rubber hose until they give you the key. It's so effective it can even break post-quantum algorithms without a quantum computer!
Governments have plenty of rubber hoses, and guns.
The idea that non-technical people with no infosec / netsec / tradecraft knowledge could use any form of crypto within a regime that banned it aggressively without placing themselves in massive jeopardy is the height of looney tunes techno-utopianism. Keep in mind that these are usually nations that lack little things like habeas corpus, due process of law, or in some cases any rule of law whatsoever. If the government doesn't like what you are doing they disappear or kill you.
Then how would a different privacy-preserving coin get adopted? If all it takes for a privacy-preserving coin to fail is other coins in the market, then I don't think it is naive to consider the possibility that "blockchain technology wouldn't become more privacy-friendly to the extent that governments trying to have power over it practically need to give up".
At some people they will have to. They have a lot of resources, but not infinite. If cracking down becomes exponentially harder due to network effects and technical reasons, they simply can't go that way.
