Does this require being on a server with a public IP address, or could this theoretically be utilized on a dedicated home server with NixOS installed on a local network?
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It **needs** a public IP, but where you point it is up to you. A VPS is easier than routing it to a selfhosted VM, but both options work.
I don't think this is true. I use Tailscale on a local machine on a private LAN