I understand what you’re saying and I think to a certain extent your right. If Bitcoin were to become outright illegal, you would have to remove the ‘Bitcoin accepted here’ sticker from your shop window. And I do think there will be people who are scarred off it.

When the crackdown happens the exchangers will be the first to go. This is why local bitcoin markets are so important http://www.dgcmagazine.com/shadow-life-necessary-conditions-for-the-long-term-success-of-bitcoin/ . I’m also hearing a lot about ripple.com being used as a decentralized bitcoin exchange, which could be very interesting.

But as long as exchanging is still possible, Bitcoin will remain very useful for transferring funds (especially across boarders) no matter what the current exchange value.

I also see it remaining very useful in the growing black markets (counter economy, underground economy, system-D…or whatever you want to call it!) around the world.

I think how this will play out depends quite a lot on how popular Bitcoin has become when the crackdown happens. There may very well be lots of people who don’t feel that they are really doing anything wrong, and just choose to ignore the silly new rules. For example torrents and file sharing.

I remain an optimist!

I think some people think bitcoins can be hide, encrypted, tor’ed and so on. But at the end… when you cant use your bitcoins for much things… bitcoins will be dead.

So im pretty sure… if governments want to kill bitcoins and make them illegal bitcoin wont have much choice. Most of the person wouldnt want to use an illegal currency anyway in fear of punishments.

http://www.ecb.europa.eu/pub/pdf/other/virtualcurrencyschemes201210en.pdf

We’re no longer flying under the radar. Probably they’ll start preparing legislation soon.