Especially since, and correct me if I am wrong, but every instance holds all of the data for all of the other instances too? (that they are federated with).

This means there is an insane amount of redundancy no? With hundreds or thousands of servers the cost would eventually become prohibitive and need to rely on only a select few large servers and thus Lemmy doesn’t ‘solve’ the issue it tries to in that sense.

Or, maybe it’s only the bandwidth that becomes an issue and the data storage is actually minimal. If that’s the case I can see more how a smaller server could afford to be part of the ecosystem. Perhaps also down the line if not already there could be a cut off point for historical data to avoid bloat.