What happens nowadays? Say, in Counter Strike Source. Is all the physical data (shots fired, grenade trajectory, player location, speed, direction and position) processed on the server, and sent back to us? Or does our computer also process it?
Does our computer only render it?
I'm not sure about server side rendering, regardless. Considering one needs at least 30 fps for decent gaming, each frame at high resolution (and probably higher resolutions still as years go by), the server would need to render hundreds of frames, from many different points of view, and send them out. It's quite a large amount of processing, and quite a huge amount of bandwidth. Maybe if our internet connections dramatically speed up.
I'm wondering, maybe they could improve flash video to the point where streaming the rendering of the game to the user's computer is a possibility?
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