I'm not sure how much you actually know about this stuff, but this take reads like you fundamentally don't understand the subject.
Most of the problems you pose exist with every social media platform, and only get worse as scale goes up. We can all agree that as user count goes up, abuse and moderation scales as well.
A centralized platform takes all of that moderation load at once. You need a team of people or some crazy moderation software that doesn't work. Abuse runs rampant as the company doesn't want to invest in proper moderation. We see that on twitter, Facebook, tumblr, all of them.
The fediverse aims to solve this problem by limiting scale. Smaller communities are easier to moderate. We see this with forums and chat rooms. When the community is small, they tend to self-police more. People tend to self-identify with that community and actively protect it.
But small communities are small and don't reach far. So we connect these small communities into larger networks. The implementation details of that are IMO pretty much irrelevant, but to answer your question: posts are duplicated throughout the network. Each server caches copies of all incoming posts to serve them directly to their local users. There are downsides to this approach, but the positive is that it crudely balances server load across the network.
Bad actors aren't much of a concern. If you start a server that just blasts spam into the fediverse, the network will quickly drop you. Individual servers have the option to refuse connections from other servers or domains. Server admins actively network with each other to warn of malicious servers. So far it's been incredibly effective.
As a user, you also have the option to block servers or other users. You also have extensive filtering options so that you can effectively moderate your own timeline.
And of course, there's also the drama between server admins blocking each other and harming users by cutting them off from part of the network. The solution I chose was to start up my own server. It took a weekend and operates exactly the same as the big instances I've been on.
When a server shuts down, users can move elsewhere. You can keep all your follows and followers, but lose your post history. That's obviously not ideal, but what were you able to keep when MySpace closed down? It's not perfect, but you can still keep going. Plus there are limited workarounds, but that's not important.
The fediverse has problems, but not the ones you pose.
Ask yourself how one scales a website to tens of millions of users. It's pretty complicated, right? Lots of servers and load balancers and whatever else.
But what about a website for a thousand users? Ten thousand? That's much more doable. That's just a single machine. The magic of federation is linking ten thousand websites run by volunteers that each host only a thousand users into a more or less cohesive network.
No matter which node in the network your account belongs to, you get roughly the same experience. No one has to spend millions filling up a datacenter. Most servers are run on donations from users or out of their admin's pocket. It doesn't cost too terribly much unless you're serving thousands of users.
When one server goes down, even a very large server, the network stays intact and absorbs the load and the users as they migrate. When a server with tens of thousands of users shuts down, we don't see a dramatic drop in total network users. Nearly all of them just move. This makes the network very resilient. No one person can do any meaningful damage to the network as a whole.
Fediverse is far from perfect. And I agree that it won't be a monetized ad- and celebrity-friendly platform like Facebook or twitter. But that's fundamentally misunderstanding what and why it is.
The fediverse is the next logical step from hundreds of small isolated forums. People built and use federated services because they want small communities driven by and for people who simply want to talk to other people. Nothing more, nothing less. It's not going to grow to encompass billions of users because that's simply not the goal.
The goal of the fediverse is simple: give people a place to talk and share with each other that is controlled exclusively by people who want the same thing. No money, no tracking, no corporations, just people talking to other people.
Everyone I know on mastodon is perfectly happy with the way things are. We see a very stable network with slow and steady growth. That's pretty much all we want or need.