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well if you do not want to permanently watermark images then you turn watermarks to off. If your running gd on your server here are the three options you want checked to do OTF watermarks
In Admin =>Image Protection => Options
Enable on-the-fly image protection
This option uses the watermark.php script to serve images
When using on-the-fly image generation, do you want to overlay the watermark image?
Full server path to watermark overlay image.
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