Let me point out, Bitcoin unlike cash, records every single transaction forever. Thus anonymity is given. But some issues in cryptocurrency require non-virtual identity.
Both Identity Space and Free Space
One solution is to create identity accounts that have special privledges such as non-weighted voting.
Each identity account could be allowed 20 free purchases a day plus 7 address moves or splits on each, which allows for annonamous blending for free.
Safety
Harmful and most illegal activity, hurts all of us. We want it to be difficult but possible to eventually trace wrongful activity. Yet we seek less governmental control for American-value reasons.
The last thing we want is for the casual observer or someone on Mars to access our private actions. You may not be afraid of how you spend money, but who likes their info being traced and sold?
We desire a cash-like harder-to-trace space. But as i said, every transaction is recorded. With resources, time and computing power, democracies can gradually track down money-laundering and crime.
We could attach one or many digital identities to each real person, accessible only to some entity charged with keeping safety, and needing warrants for FBI or whoever to observe. But companies and individuals could still report as they do now: W2, 1099, K-1 etc.
Conclusion
Identity accounts may help trace illegal activity without destroying privacy, by slightly improving the current tracing mechanisms.
Some degree of blending keeps your personal spending habits somewhat private, and this could be free. If you want to be really private, move it to non-identity addresses like now.
