Cryptocurrencies could pose a huge threat to governments should they be unable to collect taxes.
But the bigger concern about cryptocurrencies may be the damage they could do, in the long run, to government finances through lost tax revenue.
The core technology underlying cryptocurrencies, known as blockchain, is premised on anonymity: Transactions are public but linked only to an electronic address. This is a big part of what makes blockchain attractive.
But anonymity is also the main fuel for the underground economy, which is now conducted largely via cash. The underground economy is a significant source of lost tax revenue. The Internal Revenue Service estimates that it loses around $500 billion annually because of unreported wages alone. And the underground economy in the United States — estimated at 8.4 percent of output — is relatively small compared with those of other countries.
If cryptocurrencies were to replace cash as the preferred anonymous medium of exchange, they could significantly expand the underground economy because they are so much more convenient than cash.
via Opinion | Why the I.R.S. Fears Bitcoin at The New York Times