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You are wrong because the difference is that the individual instances are federated. This means that they connect together in the backend to provide users with each other's content.

When you go on Youtube and watch someone's channel, the side bar shows you suggested videos from other channels.

PeerTube can do that same thing even if every channel is hosted on its own instance. The administrator just needs to link their instance with others (so they can, for example, avoid linking to porn instances or other undesired/unrelated topics), and PeerTube will start displaying videos hosted on other instances all without requiring the user to visit another website.

That makes sense! So KittensTube, MagicTricksTube and CleanTube could all connect to each other and act as a network of federated sites based off of PeerTube?

Yup, it's the same concept as GNU social, Mastodon, Pleroma, etc.

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