In my opinion, there are two big things holding Lemmy back right now:
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Lemmy needs DIDs.
No, not dissociative identity disorder, Decentralized Identities.
The problem is that signing up on one instance locks you to that instance. If the instance goes down, so does all of your data, history, settings, etc. Sure, you can create multiple accounts, but then it's up to you to create secure, unique passwords for each and manage syncing between them. Nobody will do this for more than two instances.
Without this, people will be less willing to sign up for instances that they perceive "might not make it", and flock for the biggest ones, thus removing the benefits of federation.
This is especially bad for moderators. Currently, external communities that exist locally on defederated instances cannot be moderated by the home-instance accounts. This isn't a problem of moderation tooling, but it can be (mostly*) solved by having a single identity that can be used on any instance.
*Banning the account could create the same issue.
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Communities need to federate too.
Just as instances can share their posts in one page, communities should be able to federate with other, similar communities. This would help to solve the problem of fragmentation and better unify the instances.
Obviously there are plenty of bugs and QoL features that could dramatically improve the usage of Lemmy, but these two things are critical to unification across decentralized services.
What do you think?
EDIT: There's been a lot (much more than I expected) of good discussion here, so thank you all for providing your opinions.
It was pointed out that there are github issues #1 and #2 addressing these points already, so I wanted to put that in the main post.
The Fediverse in general needs federated identities, preferrably self-sovereign. Something like nostr, with validation signatures. E.g., you own your ID, and validate it with some mechanism of your preference. If midwest.social trusts your validator, it creates a space for your ID.
I don't think this is conceptually or implementationally difficult, but it would require a well written standard and consider both privacy issues (for users) and protections against spammers and bad actors (for hosting providers). I don't thing PGP's web-of-trust model would be a bad one. I think using the nostr network (quasi online chain) would be a great idea, and all of the parts are there; it would need a decent UI and support in each Fedi server implementation - which would be the biggest hurdle.
This would address the DID issue, and I agree with you that this is issue #1. Right now, users don't own their identities: their hosting service does. If midwest.social chose to, they could nuke my account and the canonical source of truth for all my posts. I run my own ActivityPub server and so own the account I use for Mastodon; and, perhaps, someday Fediverse federation will evolve to the point where I can use that account for everything. But it's an expensive node for me to operate, and not everyone can run their own server. Better, self-sovereign, and truly federated DIDs is incredibly important.