How does it know when to use my identity key or when to use my decoupled key? Is it like if I send a message to someone who has a decoupled key then it will also use my decoupled key?

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You can check it by using config button here "Auto": Coop will use decoupled key if both users are set it up, if not coop will fallback to the user key
I'm also adding a feature to check if message is encrypted by decoupled key or user key