The current system has zero privacy, so no change there.
Not seeing the downside.
Federally illegal activity like marijuana wouldn't benefit, but most things would.
The feds are very much into deplatforming people for legal activity, e.g. https://en.wikipedia.org/wiki/Operation_Choke_Point
Generally speaking, most people would consider "not usable in crime" to be a feature rather than a bug. ;)
Marijuana sales, for example, seem extremely popular.
Just because there’s a law in place at some remote level of jurisdiction doesn’t mean it’s just, or has popular support.
Widespread consensus heavily influences prosecutorial discretion though, which determines in practice what is or isn’t permitted by society.
The law is not a computer program, and it is applied entirely arbitrarily.
Your comment makes no sense at all. For something to be a crime it has to be explicitly defined in law. Consensus has zero to do with it. Either there is a law, or there isn't. The whole point of rule of law is that you don't get to pick and choose which law applies to you in a given day of the week.
If the law is not enforced, then it does not exist. The only real law is the one that you see day-to-day. So shooting black people is fine (in the US), and you can buy weed in shops (in a few places).
Also, Prohibition.
The law is not some inviolate thing in a society. Many millions will happily ignore unjust laws if they feel they shouldn’t be laws. More alcohol was consumed during Prohibition in the US than before it was banned.
I don't understand your train of thought. I mean, you are arguing for a monopoly controlling a centralized service just because one of the many freely available payment platforms you personally choosed may have terms of service you might break?
How is that a solution?
It seems you are not arguing for a solution to the problem you framed. You're instead confusing wishful thinking with a solution to the problem. I mean, your suggestions don't even qualify as unintended consequences: they are only unrealistic and absurd expectations from a reform that has absolutely no relation to the problem.
The problem is the account. I do not want an account in the federal reserve or anywhere so closely coupled with the government. Nor do I want an account with a public ledger or any way distributed which doesn’t allow for transaction reversals (theft) which rules out blockchain.
Actual banks are necessary.
In cases such as this one it strikes me as really odd: I would say that as citizens you have much more leverage over the government's actions than over whatever bank does (including handing over your data to the government). Thus, how is it better to have an account in some random bank than in the federal reserve (or whatever)?
With Snowden's revelations of things we mostly already knew, we can see that we don't really have much leverage over government abuse of power to collect and misuse data. The government is already doing broad data collections from private companies using secret courts... it would be a whole lot worse if the government already possessed the data.
With private banks, I can choose which one I use. There is at least some motivation for that bank to be on my side, and I don't have to wait for an election cycle and hope that my issue fits in with my side on other issues and that side gets >50% after 2 or 4 years ... my bank does something I don't like and I can switch today.
I don't trust my government to do a good job doing anything, or for anything my government does to not be vulnerable to political destruction (just look at the post office).
Banks are required to report transactions above $10k, my bank knows when I go out to buy too many gas station snacks at 2am, my government does not.