During an event put on by Dazed Media in London, Instagram's CEO Kevin Systrom explained the reasoning behind the service's decision to ban photos of female nipples. According to him, it is actually to comply with Apple's App Store guidelines, which is very strict with respect to the types of content allowed within apps, explicitly banning nudity unless the app is rated 17+. Since Instagram wants to appeal to as many people as possible, allowing female nipples would prohibit younger users who want to view PG-13 content. With the ongoing support of #FreeTheNipple, Systrom also pointed out that Instagram does not censor all cases of female nipples. Images of post-masectomy scarring and women breastfeeding are indeed allowed.
To find out more about what went down at the event, head on over to Business Insider.