You can analyze the dust spend in transactions to deanonymize Monero users. You need to be processing a lot of transactions to do this, or have the ability to spy on the processing of a lot of transactions.

Even if someone could _see_ the transaction and identify the user behind the wallets, at least a crypto still prevents fund holding and transaction blocking.

Putting someone in jail is effectively fund holding and transaction blocking.

Jailing people would generate backlash far quicker than transaction blocking and fund holding. As a tool of control it can't be used as liberally, so I'd still argue crypto is a net benefit here.

I'm not saying privacy isn't great, just that even without it, crypto is still useful. Privacy is absolutely an amazing force for freedom.

Not sure about that. People are generally fine with the imprisonment of people labelled as tax cheats, regardless of whether the label is accurate. The war on drugs has taken decades to reverse.