People don't seem to understand that it's very easy to kill bitcoin, the same way they killed online gambling in the U.S.: make it illegal to transfer money to bitcoin exchanges or to financial institutions known to violate these regulations. This would kill all the legitimate exchanges and essentially prevent legitimate users from using bitcoin. This solution also has the advantage of being jurisdiction agnostic; the rules would apply only to US banks (or if such laws are issued by the EU, to EU banks) or to other financial institutions operating in the U.S. or with U.S. customers. It's also (relatively) trivial to implement such a blacklist--financial institutions can act on a dime if jail time is at stake.
Like hemp and alcohol?
What happens when people don't need to "buy" money with their bitcoins and just use it for goods?
In reality, it'll probably be outlawed in the US as a money laundering system.
No, online gambling was hardly "killed" in the US: the illegal annual market is estimated to be $4-6 billion [1]! Similarly, Bitcoin would not be "killed" by declaring it illegal, it would most likely continue to prosper like online gambling.
"This would kill all the legitimate exchanges and essentially prevent legitimate users from using bitcoin"
I don't think so. There are many other ways to acquire bitcoins: you can sell goods/services in exchange of coins, you can mine, you can buy them from a friend in cash, etc.
[1] http://www.businessweek.com/articles/2013-01-03/bitcoin-maki...