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How are we going to pay for all this?
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Ideally, yes. If that can be the reality, and I suppose that is how it should would with federation, then server costs should never get out of hand.
For that to happen, I believe that interacting with people from other instances and moving your community and account from one instance to another have to become possible / easier.
At present, people flock to the instances with most users as those often have more local content (local content is generally easier to find than federated content) and they often have a smaller risk of shutting down. If I create a community on a smaller instance, the chance of it being found and interacted with are also much smaller than if it had been created on a bigger instance (because of, as I said, local content being user to find).
Sure, I can create an account on myfirstlemmyinstance.com (example URL, not an actual instance) with 10 users, but if my instance decides to shut down, my community of, say, 500 users will now have to move somewhere else and all old content will be deleted.
Idk for everyone else, but when I was on reddit once I had set up the subreddits I wanted to see, I really spent 99% on my time on just those. Every so often I would leave or join subreddits but it was rare. Like if people are not doing searches as often then the lag is more tolerable. Plus, won't content from larger and older instances be indexed by search engines eventually? Right now because so many communities are being created on so many different instances, it's more obvious that the searching is laggy but things will surely settle down as time passes.