I get the idea of instances, like you can make your own and this is good for privacy. But some lemmy instances are much more popular and this in fact makes it another Reddit. If there are separate instances for niche topics, why not make it another community inside a larger instance?
Your profile is also public. An instance with few 10 subscribers erases much of the information.
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Your profile contains your post history to many of your communities.
I’m pointing out that if you’re going to the trouble of hosting your own instance you could as well allow some convenient number of random users to register. It would erase most of your signal and help distribute the load and exposure to specific legal compartments.
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GDPR does not apply here. Content that people write on a forum does not count as PII. If you are not sending your users’s IP or email addresses to a third-party, you have nothing to worry about.
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Also applies only to personal information and not to content generated by the users.