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?
Government can trace your bitcoin if you had submitted your personal details to the government and stating that you owned bitcoin. With that declaration the government may impose taxes for every transactions that we are about to make.
I think government can't trace you, because it is a digital currency. That's why many bad people used in eligal transaction, it is an anonymous.