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I've been watching a slow enshittification of Discord over the last few years and preparing to move to the Next Thing in a year or two, but this actually seems like a great move, and technically interesting. Is there a downside/drawback I'm not seeing?

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The goal here has been for this to be transparent to users and "just work", hopefully you should see no downsides to this! If you do, let us know!

This does seem a nice feature and definitely a step in the right direction but why use e2ee for video and audio but not chat? That's afterall where most of Discords activity is happening

Because E2EE causes an absolute ton of friction to the chat experience. Stuff that you expect to just work like chat history and searching no longer works.

Isn't WhatsApp e2ee as well? You can search that one just fine

Haven't used WhatsApp but presumably it indexes client-side. On Discord people want to search large servers including messages since before they joined, so this approach wouldn't really work.

That said, it could potentially work for DMs.

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