But as soon as you cash out in banks, the government knows that you have got money in your bank account and you now have to pay the tax on the amount which you withdraw from the crypto.
Of course, but only if you use banks and centralized exchanges, because otherwise how will the tax administration even know that you bought or sold Bitcoin? By that, I mean the smaller amounts that go under the radar, not the ones that suddenly buy a new house or a car with money for which they can’t explain the origin.
There is a saying that a man in life cannot escape from only two things, the first is death and the second is tax. Some people would certainly disagree with that saying, but given that every country makes a living from collecting taxes, we know how much effort goes into making it as efficient as possible.