Not withholding the tax is not enough. Both the employee and the employer have to lie to the government for this to work, and for an employer this means they need to falsify their financial records, because the tax agency can demand to see them. Also, anonymous transactions already exist, so cryptocurrency doesn't make this type of fraud easier or more likely.
Your employer doesn't need to lie, you need to not get audited. Even if both you and your employer lie they will have cash flow discrepancies.
As I mentioned, there are more defensible reasons for only having one party lie, like avoiding CA's (future?) claim that paying someone who lives in California implies you hired them in California and need to incorporate in California.
