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Even if processing and storage is local, it is just too damn easy to abuse the feature from remote.

Imagine how useful it would be for software vendors (Microsoft included): "We have implemented new feature X, how are our users interacting with it? Let's ask their Recall AI about it".

This could essentially become telemetry on steroids.

In the start telemetry was seen as outrageously user-hostile spying, too. Look where we are now. We are all frogs, at least Microsoft is banking on it.