Nice idea, but doesn't this require a linear increase of the length of the partial files and a quadratic size of the original file?

If the length of a file is X, then in the next file you must skip the first X characters and look for a "5" that in average is in the X+128 position. So the average length of the Nth file is 128*N and if you want to reduce C bytes the size of the original file should be ~128C^2/2 (instead of the linear 128*C in the article).