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.
This apply mostly to the users who have a huge amount of bitcoin. They can trace some but not all if you are that clever enough. Though some wallets who requires information about you and when the time the government have legalized and released a regulation they can ask that particular wallet to release information regarding its users who are in their jurisdiction and thus the addresses that are found suspicious will be questioned and failure to answer it effectively will result your account to be frozen.
Though it would be a very time consuming job, it needs to have a department that will manage these things. If ever government would want to accept and legalize Bitcoin they might as well consider this.