My issue is not so much with "identifying illegal activity on blockchains", at the end of the day you live in a country governed by law and should abide by it or move elsewhere.
My issue is with the motion that this will be used as an excuse to "tracking everything you do" (like we need more mass data collection) and whilst Satoshis vision was great the opaque blockchain technology is actually a step backwards when it comes to our privacy.

Right now I have a choice, I use my "credit card" for a transaction where I do not care about my privacy and use "cash" where I do...
Hang tight as things could get very interesting very soon.