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 If the government made bitcoin wallets illegal and you could only use the governments wallet, and with the transparent block chain, they will know every transaction you make.

Just like everyone still pays taxes instead of going to prison.  People will break and give up.  

If the government takes over bitcoin and forks it however they wish, it would be a CBDC.  

The government plays to win.  I wonder what the future holds. 
 Most Bitcoiners dismiss pragmatic theories but as an asset grows in fiat value terms, the more a structure of control in the real world is established around it.

Right now, 500B market cap is no threat to the system. This will change.

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