Here are my thoughts and conversations with justineh & smooth on the topic of privacy from a couple of months ago. To summarize I think encryption and more options for users to set in the blockchain level can solve most of the privacy concerns and needs.
Yes, we'll need configurable encryption. I don't understand the technical details of how it can be implemented on the Steem chain, but it needs to be done. If the reward pool and some other failed "features" need to go, so be it.
As go rewards, so goes Steem.