> I don't understand how people can possibly think that identity obfuscation at scale is a good thing for a financial system.

There's an important side-effect to an anonymous financial system which doesn't get much attention, but is worth noting.

An anonymous financial system is a debt-less financial system, since without identity you can't do credit ratings or other means of enforcement of repayment. Everything is either a commodity or equity/security, not a debt instrument. And there is no debt-financing, only equity-financing (similar to the VC industry).

No debt means no leverage, or in the case of the Global Financial Crisis, no over-leverage [1]. Without debt and leverage you can't have a systemic credit collapse, the most destructive type of financial crisis (GFC, Great Depression).

I've seen one estimate that if central banks and govts hadn't bailed out the financial system in 2007/2008 GFC, there was so much leverage that the collapse would have lost the banking system more money than it had cumulatively made over its entire ~300yr modern history. That would have been Mad Max time for sure, and why the bailouts were the lesser evil.

By eliminating identity from the financial system you've deterministically eliminated the worst possible outcome that system could incur, and materially changed the expectation value for the system (and society) over time.

In the short-term, a highly leveraged, debt-based financial system will likely outperform an equity/commodity-only financial system. But over the medium to long term, when periodic credit collapses are factored in to the former, probably not.

In blockchain financial systems, any activity that requires collateral must be over-collateralized [2], resulting in significantly increased systemic robustness and reliability. If we care about deterministically eliminating the most destructive type of financial crisis from the table of possible outcomes, then we must acknowledge this is a useful side-effect of an anonymous financial system.

Finally, the comparative damage to society of a GFC-style collapse is greater than things that are enabled by untraceable money, like money laundering and sex-trafficking. The latter can be horrible, but the former is potentially a different order of magnitude, if bailouts are not possible (which may be the case next time).

* Notes & Clarifications:

1. High volatility due to price discovery activities is not the same as systemic collapse. Bitcoin and other cryptocurrencies are highly volatile, losing and gaining ~80% of their value multiple times over their first decade of existence. But such volatility is not the same as a systemic collapse.

2. Atomic debt like flash loans are still possible, where the loan is atomically made, invested, liquidated, and repaid all in the same smart contract. If any part of that contract fails, or the loan can't be repaid, then the entire thing is rolled back and the loan never even happened. But that can't result in a collapse in the same way the traditional banking system can.

[1]:https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80...

[2]:https://www.investopedia.com/terms/o/overcollateralization.a...