No way I would cut it down, dilute it, or anything else. Seal it up
tightly in a container and use it as needed to add extra kick to
salsas, marinates, mashed potatoes, Mexican dishes, and of course,
chili.

I have been growing chilis for years, and buy the dried ones now as
needed. Almost all peppers, including hot peppers of all types are
about 90% water by volume. So it is reasonable to believe (and have
certainly found this to be true in my experience) that you have the
product of about about 5 1/2 pounds of chilis.

I freeze my chilis now when I have more than I can eat, and unless I am
making chipotles, I never dry them. It takes to long, and takes too
many peppers. I now buy my peppers ground at the farmer's market for
about $6 a pound, depending on the peppers. Cheap.

Robert