I dont buy it just like Feds apparently dont buy it either (yet); otherwise they would be already shutting it down.

While bitcoins can be used for illegal transactions, it does not mean (and never will) that 99% of transactions will be illegal, just like Feds won't shut down knife factory because some knifes were used to kill. At the end, paying for something illegal is not illegal on its own; its the act or good you paying for illegal. So this or another way, in order to sentence someone, Feds will need more proof of a comited crime, than just blunt bitcoins transactions (how about crime itself).

Forging currency is illegal even though all of the components and component activities are legal. (Paper, ink, printing, lithography.) The Feds (or any government) can shut down anything they like given the right legislation. Anything that allows end runs around currency restrictions and taxes is fair game for governments, and passing laws against it (or simpy extending existing laws) wouldn't even be unconstitutional in the US.

Did you declare all your bitcoin transactions to the IRS? You may already be in trouble...

How could they shut it down? By making maths illegal? There'd be no point in a bill that outlawed bitcoin specifically, users would just move on to something equivalent.

That doesn't mean it isn't 99% illegal activity, just like e.g. Freenet.

They could easily kill bit-coin, and having made bit-coins worthless people would have far less interest using the next currency.

Like joering, you have failed to specify how the government will magically kill bitcoin.

Spend enough money on machines to have 51% of the processing power and subvert the integrity of the keychain, thereby making the entire system untrustworthy.

I cargo-culted that explanation, but it sounds good to me.

also, they can simply legislate to ban it, for whatever reason the want like someone mentioned before. Its up to you whether you want to break the law or not, but most people will not.