> Vendors of firearms, pornography, legal funds for unpopular causes, dissident content creators

Neither pornography, nor legal funds for unpopular cause (think WikiLeaks), or dissident creators are criminal. At least not in the US or Europe. But they are still blocked by the main payment processing companies.

The theory and reality don’t match.

Drugs are likely the number one things bought using crypto as currency.

Firearms and pornography can be bought with dollars if you’re using crypto to buy them or other unpopular goods or services, you are veering dangerously close to black markets, which invite regulation.

Right, but I'm specifically referring to legal, but repressed transactions.

Is it illegal to transfer value from person A to person B without the middleman?

In many cases, yes. It's not the "middleman" that is required, but reporting the transaction to the government is.

If avoiding reporting a transaction is the goal does committing the transaction to a public blockchain really bypass this? All activity is pseudonymous and in the clear.

Consider these cash examples:

A parent gives his child 5 USD to buy some sweets in the local shop.

A couple gives another couple 150 USD as a wedding gift.

A painter gets 200 USD for painting a house.