Ok so this might be stretching the limits of paranoia, but say LE or whoever develops software in the future to help them better understand the Blockchain or w.e, how likely do you guys think it is for them to come back and arrest users for drugs they ordered months or years ago or for sending to a tumbler? Wouldnt there have to be physical drugs or evidence present aswell, or would Blockchain records be enough to convict someone?
The problem is LE really wants you to be in possession of the illegal narcotic. The money trail, for a drug user/personal buyer, is simply not going to be worth it for LE to pursue for past orders and I'm not a lawyer, but without being in possession of the drugs, the case is flimsy at best and not going to be worth the efforts for trying to charge someone who bought personal quantities in the past and is no longer in possession.
That being said, a vendor or someone who is profiting greatly is at risk of these sort of efforts. Tax evasion has no statute of limitations in the US and the tax man cometh at some point. So if a vendor is not properly hiding the coin trail and not properly laundering those funds, this is something to be very aware about. If they suspect someone of tax evasion and the sums are decent, they will pursue. Even more likely to pursue - if the government suspects that a person has ill-gotten profits AND has failed to paid taxes, they will pursue. Its a way the government uses tax law to punish people for other crimes that they might not otherwise be able to prove. In other words, say LE gets wind that a suspected drug dealer made hundreds of thousands of dollars but they can't get that guy on dealing, they will use tax law to pursue charges.
I do believe part of the reason BTC is not treated as a currency by tax law is to make tax cases easy to pursue as it relates to Bitcoin. Due to the way BTC is treated, when you spend BTC it creates a taxable event. Let's say you acquired BTC at $100/btc and a month later you spend it when its worth $200/BTC - you have created a taxable event, a capital gains event, and you would need to report a $100 profit. Normally, with fiat currency (or if tax law treated BTC as a currency), a currencies' appreciation does not create a tax event. You don't need to report gains or losses when the US dollar loses or gains value. But with BTC, you are supposed to account for these sort of events. What it does is give the government a very powerful weapon to pursue tax evasion charges if they needed to. If they can show you owned bitcoin and spent it in some way, I believe you are required to report the associated gain (or loss) on your tax return. I'm not a lawyer but this is the way I understand BTC treatment by the IRS.