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If I have the game on the itch.io launcher and it updates automatically am I in trouble? or does itch.io save the new update in a different place without overwriting the previous one?

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The itch launcher takes care of this for you. If you ever look at the file structure, you'll see it makes a new subfolder for each update (and Arc has it set up so that it empties out the old subfolders so you don't have multiple instances to choose from.)

(+1)

thanks for the clarification. i hit the update button before reading the notes and was very worried, until i found this explanation.