>Bitcoin is not untraceable money, it can be even more traceable than normal currency.
Fair enough, how about "trivial to launder" instead? The fact that every transaction is visible on the blockchain means that people who don't bother obfuscating their tracks (i.e. honest people who don't feel they have anything to hide) are the one who risk their privacy invaded: "hey, look, this is the address where we pay X his salary and some of it got transfered to the known address of this sex shop website".
If you want to hide your tracks however it's easy. Say I'm a politician and I want to accept a bribe. I can get a briefcase full of cash, but that's bulky, not very convenient and I could get caught if I try to move it (especially across borders).
Or I could try to open a bank account in some place where people look the other way but it's more complicated, involves third parties who could expose me (panama papers, lux leaks...), leaves a paper trail etc...
With BTC I click "generate a new receive address" in my wallet, give it to my anonymous benefactor and that's that.
Then after that if I really want to make it difficult to follow the money I can split my coin in multiple addresses, do a bunch of dummy transactions to obfuscate where the BTC change hands, go through a bunch of coin mixers, maybe convert to an other crypto (monero for instance?), do a bunch more mixing, and then back to BTC. Good luck unravelling all that.
>It could be stablished as a law that public money when being spent in the blockchain needs to be auditable by the people (identities of sender and recipient known), and this way you would end up with even less corruption than the current system.
Public spending is already supposed to be auditable in the democratic countries I know of (except in very specific cases, like "black boxes" for paying informants etc..). Generally corruption and waste is when people overpay for a service, like say paying 10x the cost for the construction of a new stadium, favouring a contractor over an other etc... I don't think BTC would help greatly with that. There are many, many ways of making "technically legal" purchases that conceal corruption, I don't think it would improve things very much. "Here, have this very valuable painting by Manet as a thank you for your help", "Here, let me make a charitable donation to your foundation", "Here, let me change this piece of regulation that will benefit your company", etc...
Unless you want to force all citizens (in the public and private) to publish their addresses I'm not sure you can really reign that in. And even then, how would you enforce that?