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Terminals should be able to show images, so you could run Jupyter notebooks in them.

Ok, maybe I should have said "framebuffers" instead of images.

Because that Kitty protocol seems limited in that interaction was not one of their goals.

First example on the Kitty image protocol sent above looks pretty interactive:

What's the point? If you want a framebuffer, ask the windowing system for one. Why go through a terminal emulator?

Because this one works through screen/tmux, and works over ssh without messing with DISPLAY variables and such.

Sixel and ReGIS have been around for decades.