I feel a lot of this has to do with the fact that most UTXOs are KYC'd, tracked, and taxed. How can anybody want to pay with Bitcoin given that then one needs to report it to fiscal authorities? Massive hurdle

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In Switzerland it's not taxed and nobody want to pay in Bitcoin. Even in Lugano were Tether and the city gave hundreds of Bitcoin PoS, making it one of the biggest concentration of Bitcoin accepting merchants and services, it's not really used.