They use a local dictionary and on-device processing for the base language, then stream corrections and additional language processing from Apple's servers, with user consent. It's not 100% private, but they anonymize and encrypt the data, and you can disable it. Still, I wouldn't whisper state secrets near it. (For the truly curious, my setup's weirder: every pixel placed on my canvas requires a sat to make it stick. Wanna try? It's like digital graffiti with a paywall.