The main issue with privacy is not necessarily the initial implementation, but the sliding scale that it permits. Apple's statement that they will ignore "government requests" for broadening the scope is almost funny, because the government wouldn't request: it would demand. Just like how China has control over the crypto keys for the iCloud data in Chinese data centers.

So you're right that the initial plan is indeed more privacy-friendly, but it has some major future privacy implications that are much worse.