The Internet, sometimes called the network of networks, is based upon one simple principle: transferring information from one computer to another. In order to do this each computer needs an identity which is called the "Internet Protocol address" or "IP address." It is similar to a telephone number or street address. The IP address is personally identifiable information that is automatically captured by another computer when any communications link is made over the Internet.

Computers connected to the Internet speak the "Internet language" called the "Internet Protocol" or simply "IP." Each computer is assigned a unique address somewhat similar to a street address or telephone number. Under the current system there are four numbers that range from 0 to 255 (Example: 206.156.18.122). Every computer, whether it functions as a web site, is being used by a web surfer, is a mail server, and/or is used for any other function, has an IP address so it can communicate across the Internet.

Communication is accomplished by sending pieces of information called "packets" that include the IP address of the destination computer. Every transfer of information over the Internet must include the capture of the IP address. Generally, users who have fixed Internet connections (cable modems, private companies, etc.) have fixed IP addresses. Dial-up Internet providers usually give addresses dynamically from a pool when a user dials in to connect (such as a pool of 100 IP addresses per 800 subscribers). As fixed Internet connections increase, more and more users can be traced directly from their IP address. Some examples of automatic logging are: visiting a web site, sending or receiving e-mail, using a chat room, or reading and posting to newsgroups.

As of March 1998 the vast majority of privacy policies, both in the public and private sectors, fail to properly explain IP address collection as the collection of personally identifiable information. Sites such as FTC.GOV and CONSUMER.GOV have incorrect information concerning this issue. These policies indicate that only a domain name is captured. Some commercial web sites (such as VISA.COM) have copied this incorrect information and made it part of their own policy. Other industry privacy policy templates, such as those offered by the Direct Marketing Association and the Information Industry Association, overlook IP address collection. If a proxy sits between the users and the Internet all of the users appear to come from one computer. In these cases, users can only traced as far as the proxy unless additional information is known. The computer names can also sometimes be used to gather additional information. One major provider's computer names usually include the nearest big city of the user. Some networks simply use the e-mail address in the computer name [Example: russ.consumer.net has e-mail address russ@consumer.net]. -The National Telecommunications and Information Administration

http://www.ntia.doc.gov/legacy/ntiahome/privacy/files/smith.htm

To encrypt your connection and mask your IP Address you can use a “proxy” or “VPN Tunnel.” When you connect through a proxy, your computer sends your requests to the proxy server which then processes them and returns information to you. A proxy or proxy server acts as a hub through which internet communications are processed. By connecting to the internet through proxies or VPN's, the home IP address of your machine will not be shown but rather the IP of the proxy server will. If you wish to have anonymity then proxies and VPN's can hide your IP address. There are number of technologies that can provide you with service. Some are free and some which charge money, we have found that VPN's are superior in almost every way and that the paid ones are faster and more dependable.

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