IMHO the reason for the need to have privacy by default is because the sharing activities happen by default. The primary reasons why I will not use iCloud where I have used Apple online services since the .mac days is that suddenly my Contacts and Photographs autosync? That means that any moron who grabs my phone & takes a lewd picture turns me into a publisher of that information. No I will not enable that. Further where does Apple get off having access to my known associates and their contact information? I'm sure that's JUST the kind of information that Three Letter Agencies want to know about - Particularly if you are politically active. Where is the legalese that says that they will NOT start mining through that data? Why not just have a selective button that allows you to choose or mark if a data point will be sent to the cloud?
The encryption keys are held by Apple FOR Apple. Furthermore, encryption wll happen AFTER deduplication on the storage tier, just like every other cloud provider. Therefore your data is in fact programatically read & analysed PRIOR to storage and encryption.
If they were to allow you to store files that you encrypted yourself then suddenly they would need a 1:1 amount of data storage available. Most deduplication achieves up to 80% shrinkage depending on the type of traffic, therefore it would in essence require their data center to have an order of magnitude's worth of additional storage.
So NOT letting you do that translates to lower operating costs. Which do you think is more important to Apple, makingiCloud profitable or catering to the privacy concerns of the few of us far-sighted enough to see the major downsides to this?
To bring the point home - there is no way to follow Apple's developer guidelines and write an app that would encrypt the data prior to being sent to iCloud, since it would need to hook directly into the photo album and the contacts database, etc.. So not only is it wishy-washy encoded, but it s desiged in such a way to make you accept that as your best possible choice. This is functionality and development initiatives that Apple keeps guarded and to itself, but shows no initiative to develop properly.
Oh and the other reason is that I see no reason to rebuy/upgrade/patch&lose-features all of my software to run on the new OS again JUST so I can connect to iCloud. It briefly worked with Snow Leopard & then they predictably pulled it. Why is Vista supported but not Snow Leopard? Vista is older. Apple rewards brand-loyalty with a slap to the face & a grab for the wallet. For shame.
I have yet to see someone from Apple on this thread addressing the OP's question nor any of the concerns voiced following it. Why is that?