Can anything happen if I dont have a privacy policy?

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Hello!
I am making a website for a freinds Minecraft server complete with a forum section. He is worried about having a privacy policy. Do you think is completely necessary (Excuse my ignorance. Im pretty sure it is)?
I know I have already asked this, but I just thought I would get a second opinion. Im not sure how good the security is with my PHP coding, but everything is encrypted with MD5 from usernames right down to passwords and IPs.
Any ideas?

You can't use MD5 to encrypt things because of the decision problem. MD5 is insecure for even its intended usage.
If your user names are hashed, denial of service becomes very easy. EDIT: not true, I was thinking about processing each username from the database every time an user wants to log in. Use good salt.
A good privacy policy is to not log anything not useful for the function.

edit: I confused sound sampling with the decision problem.