1) He was jailed five years ago and can be released next year.
2) He was jailed five years ago and could be released next year.
Are they both correct/natural? If so, what is the difference between them?
He was jailed five years ago and can be released next year.
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Re: He was jailed five years ago and can be released next year.
Yes, both are possible and meaningful.
#2 relates to the possibility of his release occurring, while #1 refers only to the feasibility of his being released.
#2 relates to the possibility of his release occurring, while #1 refers only to the feasibility of his being released.