Many of the regulators who will soon be issuing regulation and even new law don't fully understand the potential of the protocol and you know where they are getting their info:  From the press whose main mission is selling enough eyeballs to their advertisers ( with sensational 'link-baiting' headlines)  in an effort to keep their operations afloat.

The community needs to reach out and EDUCATE or as we have seen it will be done for us!  Write a letter to your state legislator, write a letter your federal legislator.  Explain to them simply how the protocol works, explain to them the benefits it can offer to society,  explain to them how you use it.  Then explain to them how we as a community are being criminalized by the illicit activity of the bad actors.

The fact is decentralized virtual currency like bitcoin with an open, public ledger is the LAST place a criminal would want to launder money - which is the MAIN concern of government.  

Refer them to the many academics like Sarah Meiklejohn and her team who are doing studies of the blockchain: "A Fistful of Bitcoins: Characterizing Payments Among Men with No Names" http://cseweb.ucsd.edu/~smeiklejohn/files/login13.pdf

This is a DECENTRALIZED community. You can't rely on the bitcoin foundation or the bitcoin center or the bitcoin embassy etc to do it for you.  

We must each do our part and make an effort engage the decision makes to help then allay their fears and increase their understanding of this truly revolutionary technology.

The government is, I'm sure, largely worried about the ability to 'launder money', but that is a function of ensuring that they maintain control and visibility into the affairs of potential adversaries.  They have already arranged methods for their sponsors to 'launder money' for the purposes of economic gain (tax shelter loopholes and such) and another one of these in the form of Bitcoin is uninteresting.

But you are 100% right.  Bitcoin, as visualized by the Bitcoin Foundation at least, is a sucky way to try to achieve financial privacy for the reasons you outline.

People who share the Bitcoin Foundation's vision of a further water down, centralized, and pretty much useless 'PayPal 2.0' Bitcoin would do well to contact their congressmen and tell them how much it sucks for anything disruptive and how great a rope-a-dope spy system it can be with the able assistance of the Bitcoin Foundation trade group.  Especially when Coin Validation is ready for prime time.

Very good point.  However, we also can't afford to ignore when something that seems (to the world) to represent Bitcoin itself is actually becoming a potential threat to us.

I frankly do not think, as some do, that the Bitcoin Foundation has reached this level.  It still seems, on net, to be a beneficial thing.

But suppose it does cross over entirely to the dark side.  What then?  Doesn't the BCF essentially run this site?  What happens then?

Me too, actually.  I can't have many strong opinions on these issues, because I have too little knowledge.  I'd like to have more, and to have any mistaken impressions I have cleared up, or if I'm not mistaken, have enough knowledge to be more confident in my opinions.

Otherwise, I'll just tend to get more paranoid, probably.