How the government can differentiate me from drug dealer, illegal weapon dealer etc?
It cannot, but it also can't prove that you're one of them. You're innocent until proven otherwise, right?
We've been using cash for centuries and how did the government know where this cash is coming from? You could be a drug or arms dealer or a hitman. Yet billions of people were dealing in cash every day and many of us have made large cash payments. I remember when I was like 18 my parents gave me money in cash and told me to set up my own savings account. It was like 5000, a huge sum for a teenager to be carrying around. I went to the bank, placed it on the counter and nobody asked me where it came from.
They don't know what is the cryptocurrency, well they know but the law doesn't know. A prostitute will not buy 5 houses and 2 Bugatti's or Lambos. Prostitute will not have the same problem. Let's say I want to cash in a large amount of money, millions.
Are you sure? Do you know how much expensive prostitutes in Dubai are making?