Are relays going to store encrypted data for you though? It would suck to lose all your passwords. Context: I'm working on multiple features that rely on storing encrypted data on relays.

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charges a ridiculously small price to store your pictures today. If we have 3 of these providers you can probably pay them all a total of 50 satoshis and they will store your stuff for a million years. Having them just be content-agnostic Nostr relays makes the integration easier for everybody.
SLAs As more and more valuable data is ingested by Nostr use cases this will need to happen (and pretty sure will happen organically)
It’s in my plan to launch relay just to store this for users. Do you think that would be a good idea that would partially solve this?
that's a good question and valid concern. so, we can store them also on our own relay. what about maybe a sync feature where all passwords are stored also in a local database that can be re-broadcasted to different relays in the future? so, if your relays disappear, you aren't screwed because you at least have a locally encrypted copy?
I don't think clients should run relays. Not doing so forces clients and relays to come up with an incentive model for the service they're offering. If a client runs a relay for their special purpose, the relay is artificially supported by the client service. If the incentive model for other relays to exist doesn't exist, the client becomes a centralized service with a front end and a database for the majority of users. Of course, you could run your own to experiment with how such a relay should operate, but an accepted model for relays to accommodate encrypted data needs to emerge.