Ever since its inception Bitcoin has never really been private. Although Satoshi Nakamoto’s white paper suggests privacy was a design goal of the protocol, government agencies, analytics companies and other interested parties — let’s call them “spies” — have ways to analyze the public blockchain and peer-to-peer network, to cluster Bitcoin addresses and tie them to IP addresses or other identifying information.
A lack of privacy is a problem. Bitcoin users might not necessarily want the world to know where they spend their money, what they earn or how much they own, while businesses may not want to leak transaction details to competitors — to name a few examples. Additionally, a lack of privacy could lead to a loss of fungibility: the property by which each monetary unit is worth the same as any other, which is an essential requirement for money. If, for example, it can be established that certain coins were at some point used for politically sensitive purposes, some might be less willing to accept these “tainted” coins as payment, harming fungibility for all of Bitcoin.