The physics of GRB powered by a magnetic energy flux is reviewed. Magnetic fields are natural for transmitting the energy from the central compact object to the small amount of baryons required for a GRB. When dissipation of the flux of magnetic energy by reconnection inside the flow is taken into account, the magnetic model assumes several more convincing properties. For baryon loading typical of observed GRB, most of the dissipation takes place just outside photosphere, so that prompt emission is produced efficiently, and the magnetic field strength in this region is high, resulting in efficient synchrotron emission. Remarkably, the dissipation also causes very efficient acceleration of the bulk flow. This effect is illustrated with a classical hydrodynamic equivalent. In this context, the distinction between the flux of magnetic energy $cB^2/8pi$ and the Poynting flux $cB^2/4pi$ is important, and an interpretation of the Poynting flux as a `magnetic enthalpy flux illuminating. Numerical and analytical results for flow acceleration and the relative contribution of photospheric (thermal) and nonthermal emission as functions of the asymptotic bulk Lorentz factor are given. The transition between X-ray flashes and true GRB is predicted at $Gammaapprox 100$.
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