I have heard some stories about making bitcoin transactions illegal. It's all been a humor and I don't think any government have officially made bitcoin transactions illegal. Why is that?
Well I know a few countries banned the usage of bitcoins entirely. Not even on people in the country is eligible to make use of bitcoin and even buying it is illegal. There are few countries where bitcoin is banned and not available to the public like Saudi Arabia and a few more countries. Then the rest of the countries in the world are free and legal to use bitcoin in any way they want too.
They can use bitcoin on the internet and bypass the law that they had. Using a VPN to change IP addresses is a very easy thing to do.
But here is the fact why most governments banning cryptocurrency and once you abide, you were put in jail. Well, most of the reason why governments illegalized bitcoin transactions because of the drug lords, criminals and terrorist that are transacting through bitcoin and the government has no access on it the reason why they don't get caught.