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Costs will forever go up and this doesn't even mention the burden and liabilities of moderation.

Storage costs have historically dropped so fast that this just isn't an issue I'd worry about. I ran a mail provider with ~2m accounts around 2000. We had less aggregate storage than my laptop has on a single M.2 SSD now. With redundancy, the cost per GB for us at that time was around 10,000 times higher than it'd have been today. Our total processing power was lower than my laptop. Our bandwidth use was a tiny fraction of my home internet connection.

In other words: If it's an issue today, it soon won't be. Costs are low enough per user today to be viable, and they'll only drop.

You do not have to generally worry about your entire account and content being gone because some mod gave up.

I do have to worry about what happens when I have to start again because engagement is cratering and I can't just migrate elsewhere or run my own, though (e.g. I get more engagement on Mastodon than on Twitter despite 100x as many followers on one of my Twitter accounts). Since I can (and did) choose to run my own instance, I don't need to worry about that again.

The idea that a bunch of enthusiasts can replicate this, is misplaced.

This was the kind of argument used against open source 20-30 years ago. It's was just as ridiculous an argument then. This is magnitudes easier than what was achieved with open source, and it's also flawed because just as detractors of open source you're presuming that it will only be enthusiasts, and that e.g. nobody will start and operate commercial services for those who prefer that (some commercial hosters already exists for Mastodon for example).

I don't buy the "storage is cheap, bandwidth is cheap" argument.

The Fediverse is much like binary internet news. Something that is to this day not really operable for reasonable cost, especially not for small or even private providers.

A few hundred users make it necessary to shovel around TBs of data. For every involved server. This just doesn't scale, no matter how cheap bandwidth and storage will get in the next years.

You can not buy it all you want, but it's true. Consider that even if you were right that it takes only a few hundred users to require shoveling TB's of data (it's not, assuming we're talking monthly, unless you happen to be hosting e.g. George Takei and similar), the ~$5/month VPS I run my instance on can do that just fine at no extra cost. It's not necessary to pay insane AWS egress rates.

For every involved server.

This is misleading. Not every server sees anywhere close to every post, because most servers are not "involved" with any given user, and that becomes increasingly true the larger the network becomes. Larger servers sees a large proportion but also receives only one copy of each post even though they're likely to have multiple recipients.

Realistically, the number we're looking at for the source server is about half the total network cost for that set of users.

This just doesn't scale, no matter how cheap bandwidth and storage will get in the next years.

The cost per user of running a Fediverse instance is dropping, not rising, even as the network size has exploded. And as it is, the main cost of running e.g. Mastodon is that Mastodon, fittingly, is a huge, inefficient, resource-hungry beast. Not that federation is inherently costly.

My prediction is that the average cost per user for bandwidth, compute, and storage will be <$0.10/month within a couple of years. It's probably below that already if done efficiently enough at reasonable scale.

The bulk of the cost will be admin, moderation and ops, which scales linearly or sub-linearly with number of users.

Realistically, the number we're looking at for the source server is about half the total network cost for that set of users.

Now think again what that actually means.

My prediction is that the average cost per user for bandwidth, compute, and storage will be <$0.10/month within a couple of years.

So you think it's much more expensive at the moment, right?

But $0.10/month means already $100/month just for someone who has 1000 "friends". And that's not a big amount. Regular people on FB have often collected more "friends"…

A YouTube account with 10 000 followers is actually quite small. But that would be already 1 000 bucks! Most people on this planet don't earn so much money in a whole month. And this would be just the cost for some smallish hobby account…

So even when we take your numbers, it's extremely expensive! How is this going to scale beyond some privileged geeks in the western world?

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