How does conversations work between people on different instances when it comes to moderation? Is an entire conversation taking place on the instance the top post is on?
The conversation happens across the instances. User reports first go to the instance of the reporter, but can also be anonymously forwarded on to the instance of the reported post as well.
If a user is bothering someone on your instance, then either your instance or that users instance could take action.
If your instance bans them, they won't be banned anywhere else. If their instance bans them, they will be fully suspended.
