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Actually more than likely there is already sheet rock underneath the wood paneling and you only need to take the paneling down. I have done this before a few times for remodel projects and there is usually very minimal damage to the wall. A little light weight spackle to fill in the nail holes is usually all you need to do. If there is not sheetrock the walls would be very flimsy if you were to push on them, they would flex between the studs.
good luck with your project-
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