Question

Can you trade between Gen. 1 and Gen. 2 games (like Yellow and Silver), particularly when both are available via VC?

Answer 1

The time machine feature is set up to allow exactly that, with the provision that you must have played far enough in the GSC game to get to the Ecruteak Pokemon Center before you can use it, and you can't send "back" any Pokemon above 151 or any moves that aren't in the first 165, to ensure that the RBY game will only receive things that it has the data to handle.

When the VC releases of Gold and Silver come out, it's been confirmed that they'll be able to communicate with the other Pokemon VC games, including over the time machine.

Comments

So I can send a Nidoran from Gen II to gen I, but I can't send a nidoran from Gen VII to Gen VI... just sayin'...

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So this is more like transferring than trading, correct?

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No, it's still trading, it just has to be a Pokémon with moves that all existed in gen I (but not necessarily moves in that Pokémon's move pool). for example, although Charmander can't learn fire punch in R/B/Y, the move and the Pokémon both existed, so a Charmander with fire punch can be traded to R/B/Y. Outrage on the other hand did not exist in gen I, so a Charmander with Outrage can't be traded back. Likewise any Pokémon introduced in gen II can't be traded back at all.