Glossary

IP Address

IP addresses are unique numeric addresses assigned to devices connected to the internet or a local network.

What Is an IP Address?

IP addresses are unique numeric addresses assigned to devices connected to the internet or a local network. IP, namely “internet protocol,” is the set of rules and regulations governing the data communication between devices via a local network or over the internet. In cryptocurrency, IP address awareness is important to maintain your privacy on the internet.

Fundamentally, IP addresses act as labels to locate the devices and permit the flow of data among them on a network. These labels carry local information and make accessibility convenient. 

The internet requires means to discern between different devices interconnected on the internet and IP addresses provide the way to do so and are an essential part of the internet structure.

How Does IP address Work?

  • Your device connects to the internet via a network offered by an entity (internet service provider) that grants you internet access.
  • The internet service provider (ISP) assigns a certain IP address that is allocated solely to your device.
  • Your internet activity goes through your ISP as they offer you an internet connection.

  • After ensuring compliance with the internet protocols they route it back to you. Censorship of specific content or websites in certain countries is also done using IP addresses. 

Classification of IP Address

IP addresses can be classified into two domains: formats (IPv4 and IPv6 protocols) and types (dynamic and static). Let’s discuss them further!

  • IPv4 and IPv6 are the two formats of IP addresses. IPv4 is a 32-bit format that can form up to 4,294,967,296 combinations. It is a numeric addressing method that uses a dot (.) to separate its binary bits. It offers 12 headers and uses address resolution protocol (ARP) to map IP addresses.
  • Since the internet and crypto boom, the volume of devices on the internet is growing exponentially. To cope up with the need for IP addresses, in 1998 a new format was introduced named IPv6, a 128-bit format that features 2^128 (340,282,366,920,938,463,463,374,607,431,768,211,456) addresses. . It is an alphanumeric addressing method that uses a colon (:) to separate its binary bits. It offers 8 headers and uses neighbor discover protocol (NDP) to map IP addresses.
  • The two types of IP addresses are dynamic and static. Dynamic IP addresses are not specific to one user. Internet service providers assign specific addresses to each connected device that are reassigned to other devices when the previous one loses access to the internet. This constant change of IP addresses makes it harder for criminals to hack into your network interface. Static IP addresses remain consistent and are mainly used by businesses that want to host their own servers.

IP Address and Crypto Privacy Problems

The main concern when utilizing digital currencies is on-chain security and maintenance of privacy. Without on-chain security, sharing your private details on an exchange or address can make your identity and personal information available to the public on the blockchain. That said, security is about data leakage, and a secondary component after on-chain privacy is decoupling your IP address from your identity when utilizing cryptocurrency. IP Privacy is important in circumstances where being recognized as a crypto trader can put you at risk, especially in an authoritarian state.

How to Protect Yourself From Crypto IP Privacy Issues?

  • Don't ignore on-chain security measures. If your on-chain information is public, there is no good reason for concealing your IP address. Stay away and avoid sharing your personal information with such crypto exchanges that lack on-chain protection measures.

  • The most ideal way of protecting your data is a virtual private network (VPN). Whether or not you are accessing a crypto exchange, it is better to use a VPN connection in order to prevent yourself from major hacks. If you are thinking about what is a VPN, a virtual private network is one where your location is steered off to an alternate geological area. That makes it impossible for your internet service provider to follow your online activities. Here, you replace your unique IP with the one provided by the VPN service. Therefore, no one can find your location, personal information, or crucial details using your IP address.