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How does Lemmy/Mastodon/Fediverse store videos and images?
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I was wrong about what gets cached: media that is hosted directly on remote instances is not cached, while media from outside sources (imgur etc.) is cached and served from that cache.
So, from a small instance's point of view, the best case scenario would be if everyone used Lemmy's own media hosting exclusively. But that would, of course, greatly increase the storage requirements of larger instances.