The privacy issue hadn't occurred to me; but, I see now how someone could inadvertently (or intentionally) dox you through your "petname"... that could be a problem.

As far as usage goes, maybe the standard client action could be to populate the nickname to match the display name at the time of being added to a follow list... if that nickname never got changed from that point on, so be it.

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Some clients do this, it's not a bad idea

Gossip client lets you override somebody's name with a petname, and puts a special symbol next to their name if you did that. Pet names were supposed to be a distributed naming web where you would refer to somebody through somebody else's petname: JudgeHardcase.hodlbod would be the person that hodlbod calls "JudgeHardcase". But I never coded anything like that.