In the end, even if implementing privacy on protocol level would solve all our issues and exchanges & authorities would suddenly accept that they can't easily track Bitcoin anymore (highly unlikely in my opinion), I'd like to bring up one question. Do the people who currently use Bitcoin with 0 privacy (who would gain some by this procedure), deserve it? Do people who are ready to sell out their own PII without blinking twice, who are ready to run with all the 'criminal tainted UTXO' nonsense, deserve protocol-level protections of their privacy?
Yes. Privacy is a human right.
Universal Declaration of Human Rights
Article 12
No one shall be subjected to arbitrary interference with his privacy, family, home or correspondence, nor to attacks upon his honour and reputation. Everyone has the right to the protection of the law against such interference or attacks.
If privacy is guaranteed on a protocol level, you don't need (to rely on) laws to protect you. Many people don't care about many things, but improving it makes it better for everyone. Including the people who couldn't care less.
Alright; that's a good point, however I still don't know why the entities pushing against this human right (politicians, lawmakers, ...) would treat 'Bitcoin with protocol level privacy' any different from 'Bitcoin with high-level privacy' (that comes from ChipMixer or other non-traceable origin). To them I don't think it matters
why they can't trace it, just
that they can't - and that's what they push back against. They couldn't care less in which layer we implement privacy, in my opinion.