How do they even know who owns what UTXO?

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They don't. Just need to keep the power and control over the people. These people and their motives are not that smart or complicated. Power, control and money.

It's like Soviet Russia. You're not going to act out because they can take you in and disappear you if you do. Most people are already scared of Bitcoin, so this will just be the nail in the coffin for them.