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I might be wrong but I assume that those avatars are created as animated GIF files. Which is simply a "stack" of GIF images that people edit in a photo-shop-type program and save as a GIF file.

Years ago, I used to make them in Adobe Image Styler as a banners for various websites. You do not need to host them on a separate server, just upload it to PRIUSChAT as you would with any other image file.

 

Short story is that the picture you use needs to be an "animated .gif" file. Your avatar for example is a .jpg file. With an animated .gif file you can have multiple frames of pictures, and browsers are cabable of displaying this frames at a given rate. You can pretty much use animated .gif files whereever other internet files work (e.g., .jpg, .bmp, png)

To create an animated .gif file, I use something called photoshop, and vary each layer slightly, but I think that there are more eloquent and easily accessible programs out there to help one create these files.

Others here can elaborate more than I can.