How can the government discover I own BTC, let's say I'm from Venezuela where crypto is banned, what they can do to discover and arrest me?
Bitcoin transactions are anonymous. As long as you don't reveal your identity, no one know you are a bitcoin holder.
For this purpose you have to buy bitcoin peer to peer from a person you trust. Never use exchanges that force you to verify your identity.
sir very well explained but i just want to know
1)through wallet address can government identity the person
2) if someone trying to exchange his crypto currencies into fiat , is government can know about this?
Government can know about it if they receive the data from exchange or payment processor. If you're buying the bitcoin with bank transfer for example, it's easy to trace the transaction from your bank account