The original design was for transactions to remain pseudonymous from end to end, and the public records remained as such until you cash-out. It is here that we lost the pro-privacy gift of the blockchain.
Early versions did include a
pay-to-IP function, which was sort of a privacy pitfall on top of being a security pitfall.
The moment you cash-out your bitcoin to a bank or an exchange or to any other means that requires a real world identity, pseudonymity is lost. Satoshi's rally for privacy goes down the drain. Your identity is uncovered. They can already trace your bitcoin wallet address and all other wallet addresses you transacted with.
The effort of pseudonymity is lost. But is there really a way out? Can we really remain pseudonymous to continue the blockchain's rally for privacy?
There are a few methods that should improve privacy in the future. I believe
Dandelion is already compatible with Bitcoin, and can obfuscate the originating point of transactions. Progress is being made on
Confidential Transactions, which make transaction amounts private. Schnorr signatures are also exciting from a privacy perspective because they incentivize Coinjoin-type transactions.
It's true that web browsers (cookies) and payment processors like Bitpay (who collect lots of data about you) remain big problems for privacy, though.