Bluesky differentiates between blocking and muting. Bluesky blocking is like what you describe, which is also how Reddit blocking works. Bluesky muting is like Lemmy blocking, where they can engage on your posts, you just won't see it.
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I wish we had time-limited blocks / mutes on Lemmy. I use them all the time on Mastodon to exit a conversation when I am getting to short. If it really matters, I can revisit after a fortnight of reflection.
That’s why it’s called blocking, not banning.
Not sure if it's the same on Lemmy, but on Mastodon, your blocks are definitely shared to other instances. So the instance of the user you blocked definitely stores that you've blocked their user. And their system admin can view if their user has been blocked (via the PostgreSQL db).
Technically, hiding your posts from your intended blockee should be doable. But someone could run a modified version of Mastodon and display content from people who have blocked them.
Or just create a new account.
I'm unsure if Lemmy is coded in this same way (storing remote blocks on instances of the blocked user).
Practically speaking, there's no good way around it. If you could block them seeing you, they could just make another account to follow you with.