Comment by reincarnate0x14

The behavior exists to prevent a 3rd party from inferring keystrokes from active terminal sessions, which is surprisingly easy, particularly with knowledge about the user's typing speed, keyboard type, etc. The old CIA TEMPEST stuff used to make good guesses at keystrokes from the timing of AC power circuit draws for typewriters and real terminals. Someone with a laser and a nearby window can measure the vibrations in the glass from the sound of a keyboard. The problem is real and has been an OPSEC sort of consideration for a long time.

The client and server themselves obviously know the contents of the communications anyway, but the client option (and default behavior) expects this protection against someone that can capture network traffic in between. If there was some server side option they'd probably also want to include some sort of warning message that the option was requested but not honored, etc.