Public blockchains will increasingly function like the traditional financial system without decentralized privacy. At best, some sort of centralized privacy will be implemented, that will lead to the centralized privacy provisioners instituting their own respective white/black lists, that create jurisdictionally defined walled gardens. That in turn would lead to significant friction/rent-seeking at the boundaries between jurisidictions, and lack of competition within jurisdictions.
Turning Ethereum into a big Tornado Cash would just endanger the whole project.
Stealth addresses wouldn’t turn Ethereum into a big Tornado Cash. They provide much weaker privacy than Tornado Cash.
But even the argument for baking in strong TC-level privacy at the protocol level is a strong one. Privacy will become increasingly criminalized over time, unless the status quo adopts it. Without normalized privacy, criminals will disproportionately use privacy technologies, making it far easier for opponents of privacy technology to rationalize measures to prohibit it.
Normalizing privacy at the protocol level would establish a ‘new normal’, that could plausibly forestall further efforts to combat crypto crime via hamfisted, civil-rights-violating prohibitions on privacy technology.
Arguably, the crypto sector waited too long already to implement protocol-level privacy, and allowed the precedent of the Tornado Cash sanctions to be established. It will take a Herculean effort to reverse the damage already done at this point.
All of these use cases would be weakened and compromised if stealth transactions could be implemented.
Stealth transactions wouldn’t weaken/compromise any of those use-cases. They are an entirely opt-in feature and provide full auditability of transactions even for those transactions that opt-in.
Ethereum is the leading public blockchain, and turning to privacy would result in a massive loss of trust and value.
Almost all of the value in Ethereum at the moment is speculative, and based on projected use-cases that will never materialize without permissionless/decentralized privacy.
Shying away from the fully developed vision of a decentralized financial platform would be akin to the cypherpunks in the 1990s giving into the surveillance advocates who opposed public access to strong cryptography, and acquiescing to the NSA’s proposal for a Clipper chip to give the government a backdoor to surveil all internet communications. It would have precluded the development of a global internet economy and the trillions-of-dollars / millions-of-lives-saved worth of productivity/quality-of-life-improvement that it generated.