How does what I'm talking about prevents federation? Lemmy is federated with kbin and mastodon even though they don't work the same way...

I never said I see no value in what Lemmy created, I'm saying that the way they went about it might not have been the right one because now that there's a lot of users and many instances were created, we can see that one major flaw in the system is that the instance's admin can just decide they're done with Lemmy and all content hosted on their instance just vanishes.

If your instance crashed I wouldn't be able to see your messages until your instance was back online, that's why when you copy a permalink to a comment it's the address of their instance that you see, instances host the content posted by their own user no matter where it's posted, instances communicate between themselves to share that info so their users see what other instances users post, that's also why you might still see posts on communities of instances you're defederated from, they're posts by people from your own instance.

On the password thing, it's no worse than what's going with the current system, you're trusting the instance admins not to leak anything... Heck, splitting up the lists could be even more secure since it could be equally divided between hosts instead of having a couple of instances hosting what amounts to over 50% of all credentials... What happens if lemmy.world's admin leaks everything?

And I'm suggesting solutions, I don't have the expertise to implement them. Do you believe that all tech is developed by the person who came up with an idea? Because I sure would love to meet the person that developed my cars seats, computer, engine and suspension, that single person must be one hell of a genius!