It also brings legislative challenges, such as 'prove that your money did not come from running an international assassination ring'.

I haven't heard of PirateChain. However, the state-level threat model includes things like taxes, where (e.g.) people in the US have to report every transaction they make.

If most people report their PirateChain transactions, amount in, amount out, then the problem is that unreported transactions would stick out and would probably be associable with wallets. Am I getting this wrong?

As long as transactions are in the right categories, you can group multiple similar transactions and report the dates as 'various'.

A requirement to report taxes is not normally thought of as a threat to privacy coins per se. And the whole privacy coin thing is modelled on the belief that the state has no business knowing all your financial details.

I think it should be, when the tax reporting requirements are so granular; and in such cases, the effect is analogous to a timing attack.

What are the laws requiring reporting of every transaction?

I know it's necessary to report transactions which establish the cost basis for capital gains, but doesn't mandate report of all transactions.

The IRS considers Bitcoin an asset. Every time you buy/sell goods with Bitcoin or just plain buy/sell Bitcoin, you have to report that as if you were buying/selling any other asset, like stocks. So most Bitcoin transactions will be subject to capital gains tax.

https://www.investopedia.com/articles/investing/040515/are-t...

Please correct me if I’m wrong — does this fact not imply that any attempt to actually use cryptocurrency as a currency to buy and sell goods (I.e. how we currently commonly use USD) is completely impossible, since the capital gains taxes will cause everything to cost substantially more?

The tax is only on the gains of the worth of the spend Bitcoin. If you buy a Bitcoin and immediately spend it on something, there will be no gain, so $0,00 taxes.

If you bought a Bitcoin when it was $5000 and you spend 0.2 Bitcoin today (now they're ~$10000 a piece) you would need to report $1000 of capital gains.

You could argue that would make your 0.2 Bitcoin / $2000 purchase cost more, because you have to add the tax. On the other hand, if you sell those Bitcoin later, you would have to pay those capital gains tax anyway.

The story does become a bit more complex when you factor in long-term vs short-term capital gains tax.

In the US, all transactions to/from a financial institution of $10,000 or higher (including cash) must be reported. Same applies if multiple transactions on the same day reach that limit. So all attempts to cash out will be hard to avoid tracking. Also, attempts to structure transactions to avoid this, like $9999 per day, is illegal with jail and fines applied.