A limitation is that since the entire history of the tokens sent must be transferred from user to user, the history of your token is known to whoever you send BPT to. This is still much better than every transaction being publicly recorded on the blockchain.
No it isn't. Over time any regular transaction processor (such as an exchange, payment processor, bot, service, active user, etc.) will see more and more of the history and very little of it will remain private in any useful sense. (The same criticism applies equally to blackbytes itself.)
If you are going to create an embedded coin protocol, you can define whatever protocol you want. You might as well use some better privacy enhancing method instead of this silly one.
I will admit, the blackbyte protocol is the only privacy method I think I have enough knowledge to implement. I invite anyone to implement something stronger.
Zerocoin protocol?