Shameless plug for a research project going on at my school: https://priv.io/ can replace most social networks you can think of in a decentralized, private, encrypted manner.
This is a terrible solution. If you think the situation right now is bad, your solution will only exacerbate the problem.
Right now, these exchange points you discuss already exist in the form of IXPs (Internet eXchange Points), which are privately owned and operated. Anyone that wants to peer at an IXP can do so (usually, and assuming you lay your own cable to get there), and whether or not a peering is made is decided by the would be peers. In the world you illustrate, these peering decisions are made by government regulators.
Why is this bad?
If everyone has to peer with each other for free, why would anyone ever lay their own cables to anything but an IXP? More importantly, the profitability of being a transit provider (think AT&T, Level3, etc.) is already dropping off a cliff due to ridiculously low margins. In your world, there is literally zero money to be made as a transit provider. In fact, you strictly lose money providing that service. Short of a government takeover of all Internet infrastructure, there is no feasible way to implement your solution without putting companies out of business in droves.
You effectively make the entire backbone of the Internet a public service. Your solution asks companies, which have expended enormous amounts of capital on infrastructure, to share their capital expenditure with anyone and everyone. That's entirely unfair to those companies, and it renders their investment useless.
Do you guys store passwords in plain text? Shouldn't you only be able to get password hashes from a vulnerable server? I might be reading too much into your statement, but I'd like to know if I'm misunderstanding the situation.
I'm lumping "average daily mail reader" with average person. Surely you are not ignorant to the effects that propaganda can have on the population. The linked article does nothing but narrowly discuss one possible consequence of this type of technology in a manner meant to illicit fear or general negative association. This is by definition propaganda and it detracts from a thoughtful analysis of the larger topic of discussion. I'm not patronizing anyone by drawing attention to the idea that plenty of people use news articles as end points for information; I'm simply drawing the connection between that phenomenon and the type of biased reporting seen in the article above.
Your original post is a huge tangent from the topic of discussion. That article is pure fearmongering and is exactly the type of propagandized information that stifles innovation.
Obviously it makes sense to talk about the ramifications of new technology, but the article you linked is doing this in a heavy-handed way to get people to read the article. The result is disproportionate value being placed on that idea for the average reader of dailymail, which necessarily detracts from the discussion of balance surrounding this research.
I know you're being sarcastic, but it's upsetting that people are capable of having this attitude. There is no excuse that can ameliorate this behavior in the name of democracy or any other alleged moral acumen the propaganda machine spits out. It strictly amoral to attack freedom of the press, which is why we have so many protections in place, whether genuine or artificial, to prevent just that.
I'm not personally involved in the project.