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What is the difference between a proxy and a VPN? from freemexy's blog

What is the difference between a proxy and a VPN?
A proxy connects you to a remote computer and a VPN connects you to a remote computer. So you have to be more or less the same, right? Not exactly. Let’s look at when you want to use which and why proxies are a bad substitute for VPNs. @¥#456!
Proxy hide your IP address
A proxy server is a server that acts as an intermediary in the flow of your Internet traffic, so your Internet activity appears to come from a different location. For example, say you’re physically in New York City and you want to sign up for a site that’s geographically restricted to people in the UK. You can connect to a proxy server in the UK and then connect to this Web site. The traffic from your web browser seems to come from the remote computer, not your own.
Proxies are great for low-profile tasks like watching YouTube videos with region boundaries, bypassing simple content filtering, or bypassing IP-based restrictions on services
On the other hand, proxy servers are not so well suited for high stakes tasks. Proxy servers hide only your IP address and are a stupid man in the middle for your Internet traffic. They do not encrypt your traffic between your computer and the proxy server, they usually do not remove identifying information from your transmissions beyond the simple IP exchange, and there are no additional privacy or security considerations integrated. Anyone who has access to the data stream (your ISP, your government, a guy snooping on Wi-Fi traffic at the airport, etc.) can track your traffic. In addition, certain exploits, such as malicious Flash or JavaScript elements in your web browser, may reveal your true identity. This makes proxy servers unsuitable for serious tasks, such as preventing the malicious WLAN hotspot operator from stealing your data.
Virtual private networks encrypt your connection
virtual private network, like proxies, make your traffic look like it came from a remote IP address. But here the similarities end.VPNs are set up at the operating system level, and the VPN connection captures the entire network connection of the device on which it is configured. This means that unlike a proxy server, which acts merely as a man-in-the-middle server for a single application (such as your web browser or BitTorrent client), VPNs control the traffic of each application on your computer from your computer Capture web browsers to your online games to keep Windows Update running in the background.
In addition, the entire process is routed through a heavily encrypted tunnel between your computer and the remote network. This makes a VPN connection the ideal solution for any type of high-stakes network where privacy or security matters. With a VPN service, neither your ISP nor other snooping parties can access the transfer between your computer and the VPN server. For example, if you’ve traveled to a foreign country and are worried about being able to securely connect to your home network on your financial websites, by e-mail, or even remotely, you can easily configure your laptop to use a VPN.
Although you are not away on business in rural Africa, you can still benefit from a VPN. With a VPN enabled, you no longer have to worry about security measures for Wi-Fi and networks in coffee shops or the free Internet in your hotel is fraught with security holes.

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