I.e.: If the security/privacy guarantees really are as advertised, then ipso facto someone could store child porn in the system and the provider couldn't detect this.

Then by extension, any truly private system is exposing themselves to significant business, legal, and moral risk of being tarred and feathered along with the pedos that used their system.

It's a real issue, and has come up regularly with blockchain based data storage. If you make it "cencorship proof", the by definition you can't scrub it of illegal data!

Similarly, if cloud providers allow truly private data hosting, then they're exposing themselves to the risk of hosting data that is being stored with that level of privacy guarantees precisely because it is so very, very illegal.

(Or substitute: Stolen state secrets that will have the government come down on you like a ton of bricks. Stolen intellectual property. Blackmail information on humourless billionaires. Illegal gambling sites. Nuclear weapons designs. So on, and so forth.)