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Has anyone looked at network traffic while using the Magic Editor to see if it’s actually offloading the processing? Or is this just an inferred conclusion based on needing an internet connection? Is it possible that it requires an internet connection to fetch new models or something but the processing is still on device?

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The magic editor (rainbow button on Google photos) only works if you enable cloud backup, so yes.

All sorts of stuff in photos breaks in degoogled phones.

It wouldn’t surprise me at all if they decided to disable on device features unless you sent them your data so they could monetize it, share with oppressive regimes, etc.

This seems like the most likely answer to me, but getting little fanfare here.

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