Now one thing I'm wondering is... why are we not improving Bitcoin's fungibility and privacy? Is it that we're scared of the governments' reaction to it? Wasn't Bitcoin released as a counterattack against the fiat system? What are we scared for precisely?
No, it wasn't and people should really stop creating themselves reasons as to why Bitcoin was created for. Satoshi only once used the term fiat money and while talking about the government he actually went against a phrase that claimed the same as you:
"The developers expect that this will result in a stable-with-respect-to-energy currency outside the reach of any government." -- I am definitely not making an such taunt or assertion.
Bitcoin was created as a p2p payment system, nothing more, it wasn't meant as something to replace fiat, to replace banks, to topple governments to end poverty, or bring a new world order with the rule of the reptilians. People have high expectations from a piece of code, it is nothing more than a tool that can be used as long as conditions for it are met, simple as that, and acceptance for this is at an individual level.