Privacy is mandatory for the Bitcoin network layer but should just be an option for user facing applications. If emails could only be sent encrypted, mass adoption of the internet would have never happened.
Bitcoin is a child of the cypherpunk movement.
We do not know who Satoshi Nakamoto, the inventor of Bitcoin, is but we have a good idea about the people who inspired Satoshi. Bitcoin is clearly a child of the cypherpunk movement, proven through the list of references mentioned in the Bitcoin white paper.
The cypherpunks formed as a group in the early 1990s in the San Francisco Bay area. Most of them had a strong libertarian or anarchist mindset, envisioning a future without states ruling and limiting individuals. Well, as there are no stateless places on the globe, cypherpunks are striving for so-called crypto anarchy, virtual anarchy created by using cryptographic tools. If you encrypt all your communication, hide your location by using the TOR network and use privacy protected crypto money. You can subvert the power of the state you are living in. Cryptography would put you out of reach of the state’s ability to tax and regulate you.
Most of us are not a cypherpunks
Although crypto anarchy might be a luring idea for everyone on the day of tax payment, in reality, the plot of most people’s lives has very little in common with the crypto-anarchist lifestyle. Instead of hiding in cryptographically ensured privacy, billions of people share most of their life on social media platforms. If people are asked to trade privacy off against usability and convenience, privacy seems to lose. This is being brought to evidence through the way we communicate (email, messenger), store our data (cloud) or pay our bills (credit card).
The importance of privacy
Most people seem to make less and less use of privacy protection, although privacy is crucial for our social and personal development. Everybody needs a space, where he can be alone, where he is sure not to be watched by anyone and where he will behave in a way as he would never behave if someone is watching. Glenn Greenwald describes the importance of privacy very good in his TED talk from 2014.
The possibility to protect someone’s privacy whenever it is wanted is one of the foundations of our freedom. It is crucial to have the possibility to encrypt emails and data or to pay something with anonymous cash, whenever we want to do it. Not because we are terrorist or criminals, but because we want no one to know about what we are doing or thinking.
What brings us freedom is the option to choose privacy protection at any time, without a need to argue for using it. Even if people use it very seldom, it is crucial to have this option.
Privacy on the Bitcoin protocol layer
With Bitcoin, we should have the same choice as for all other tools that we are using. We should have the possibility to use it with privacy protection, but we also should have the option to surrender privacy against better usability.
To maintain the possibility to use it with sound privacy protection, improvements on the protocol layer are necessary but already planned. The fact that every Bitcoin transaction is stored forever in the blockchain combined with the increasing capabilities to analyze the blockchain data, have made transactions and users traceable. Upcoming improvements like the implementation of Schnorr signatures and the increasing use of the Lightning network help to keep up the possibility to use Bitcoin with full privacy.
If email could only be sent encrypted, the internet would not have become a mass technology
For user-facing applications like wallets, strong improvements regarding usability are necessary. Mass adoption will not be possible if we ask non-tech-savvy people to deal with cryptographic keys. Providing user interfaces that allow sending Bitcoins to user profiles, bound to mobile numbers or emails, will make handling of Bitcoin much easier, although they are compromising the anonymity. We must give the users an option to opt out of privacy for better convenience and usability. If writing an email would have only been possible by encrypting it with tools like PGP, email would have never become the first mass use case for the internet.
What if the Bitcoin community rejects trade off privacy as an option?
Cryptocurrencies are bringing a measurable efficiency gain by superseding payment intermediaries. Any new technology that allows us to do something more efficient than it could be done before will stay and become accepted. The cryptocurrency which will first provide a mass capable user experience will succeed. So rather we start building this user experience for Bitcoin, or corporate tokens from companies like Facebook or Telegram will do so.
If corporate coins should win the race for user acceptance, driven by usability, there will be no option to use its privacy protected. If these coins should establish as a general mean of payments, we will have irrevocably lost the possibility to do privacy protected payments and with that lost a big part of our freedom.
In that case, I would prefer 99 percent of all Bitcoin payments being fully transparent, but still having the option to use it privacy protected, if needed or wanted, without the need to argue for it.