The growing sophistication of online systems was not being supported by public policy, he said.
Mr Gates has called on the US government to start work on uniform, Federal privacy laws as part of the next step toward improving technology services.
New technology like smartcards, capable of powerful applications in a variety of areas needed better privacy protection than simple passwords, he said. Until uniform privacy legislation was enacted, the application of the technology would be as stunted as the confidence in the system of its users.
Mr Gates told guests at the annual dinner for the powerful Center for Democracy and Technology that it was no longer realistic in a connected world to rely on “incompetence” for our privacy protection.
“All of our information will be on the internet,” Mr Gates said. “Our health records (for example).”
“Historically we have simply relied on I guess you could call it incompetence to protect our privacy,” he said.
Americans for too long had considered their social security number as some kind of “magic number” for privacy, thinking if they didn’t give that number out, then organisations wouldn’t be able to correlate different databases.
“Believe me, even without that number, the ability to do that correlation is now there in a very deep way.”
In addition to providing protection for consumers – which would then spur usage of e-Services as confidence in the network grew – uniform legislation would also give business a clear set of guidelines and boundaries to develop future services.
“A lot of issues are about identity (and) there's some progress being made,” Mr Gates said.
“Standards like Open ID, work like what we call (at Microsoft) CardSpace, is a move away from passwords that are a very weak thing to Smartcards, reducing the amount of ID theft that's out there.”
“One of the things that we think would be a strong milestone is to have an all-inclusive uniform privacy law at the federal level that would give consumers control over their personal information.”
“This would increase their confidence in providing information to legitimate businesses and other organisations,” Mr Gates said.
Microsoft chief privacy strategist Peter Cullen said building trust in systems and process was critical to growing online markets. He said while uniform federal laws in the US were important, the privacy discussion needed to include governments all over the world, as well as companies and organisations.
“Building that trust, creating systems and processes that are more secure, giving people the confidence to know that the technology they use will protect their identity and personal data, cannot be accomplished by any one organisation,” Mr Cullen said.
“Success will require a lot of hard work and extensive cooperation between companies, governments and organisations around the world.”
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