How do services like Sia handle illegal content?
All data is fragmented and encrypted, so it's impossible to know whether a particular host is storing a fragment of illegal content or not. I suppose if you somehow _did_ find out you were hosting a fragment of illegal content you could breach the storage contract (and pay the resulting penalty) but that's very unlikely because, again, all content is encrypted.
For encrypted data, I think it will be similar to the situation with other storage providers. If law enforcement searches your computer and discovers that you've uploaded illegal content in encrypted form to S3/GCS/Mega (especially Mega because they make it so easy to upload client-side encrypted data), then law enforcement will order the provider to destroy all copies of the data.
It will be interesting to see what happens if the provider is a Sia host. Law enforcement entities have standard processes for reporting illegal content to Amazon/Google/Mega/etc, and those companies have teams responsible for handling those requests. Casual Sia hosts currently wouldn't know how to handle such a request. The outcome might be that the compliance costs are too big for casual home users, so hosting on Sia becomes a specialized task that only dedicated companies can provide.