Can bitcoin take Fiat's place in time? Suppose it does? Can govetment step in and stop this program?
Its not possible to do , bitcoin is decentralized and no one can stop the transaction or a specific address from functioning. We switched from cash to credit cards and I think Its safe to say that cryptocurrencies will takeover in the future but probably governments will create their own digital currencies that are under their control.
So you're saying that no matter what, bitcoin cannot be traced or be frozen by the government. I guess that makes the government alittle uncomfortable.
It cannot be frozen definitely but there is a possibility of tracing , Its something possible to avoid though. You could use Bitmixer.io to mix your coins , use a new receiving address each time someone is sending you money etc... I doubt the government will spend time to trace each individual though , Its definitely time consuming.
It's right that tracking will really consume the time with the uncertain result but if it's about a money and the amount was high then the government will do whatever they can do. As for example is when FBI seizing about 26,000 bitcoins from silk road or when Australian government seizing so many bitcoins. The government won't waste the opportunity to seize many bitcoins which have pretty decent value for each in large amount to increase the income of course.