The problem with paying taxes for bitcoin capital gains if you have privacy.

AML and KYC laws are getting worse and worse and more enforced and enforced. The operation Choke point 2 is getting more chokey. DEFI is almost completely banned in EU.

If you use any kind of privacy tool for crypto such as mixer, coinjoin, tornado cash, zk network, whatever it is, it will lead to your bitcoin becoming useless because laws enforce anyone who you send the crypto to must do a KYC check on you and AML proof of source of funds. But because you used a privacy tool you will fail the proof of source of funds check. Then your bitcoin will either be returned to you or confiscated. The bitcoin is useless.

But you still have to pay taxes on this useless bitcoin? The bitcoin you can't do anything with, can't buy anything with? can't withdraw to fiat? You have to pay taxes on it or you will go to prison. Is that right?

This means you have to just go ahead and send all the bitcoin to an exchange and let them confiscate it. Now you have no more bitcoin, you are broke and all savings are gone and now you don't need to pay taxes because you have nothing.

Is this how the system works?

Also just in case someone will reply and say they have used a coinjoin but didn't get problems withdrawing to fiat. This only means you send a small amount of money or it means you don't have privacy because you don't know the basics of bitcoin. You probably use a light SPV wallet and use public nodes who track you and see your IP and all the addresses you have in your private key. Mixing your UTXO together and so on which you shouldn't. Bitcoin is very very trackable and there is much you need to do to get some privacy. You need to use whonix, bitcoin core full node and then your wallet need to use your own full node, not someone else full node. If you do everything right to get your privacy, and you send larger amount of money then you will have it all confiscated and become useless.

What is your solution to this problem? are you revolutionary and hodling uselss bitcoin which government want to confiscate from you? are you evading paying taxes on your useless bitcoin? Or are you using bitcoin without any privacy? you have 90% of all your wealth without privacy, easily tracked by everyone who wants to know? And then you only use coinjoin on small amounts of spending money? That is barely any privacy and not satoshis vision for bitcoin.