Soft Xpert: 2009

Tuesday, October 13, 2009

The U.S. dollar and the euro

Worldwide use of the euro and the U.S. dollar United States External adopters of the US dollar Currencies pegged to the US dollar Currencies pegged to the US dollar w/ narrow band Eurozone External adopters of the euro Currencies pegged to the euro Currencies pegged to the euro w/ narrow band Note that the Belarusian ruble is pegged to the Euro, Russian Ruble and U.S. Dollar in a currency basket.

Since the mid-20th century, the de facto world currency has been the United States dollar. According to Robert Gilpin in Global Political Economy: Understanding the International Economic Order (2001): "Somewhere between 40 and 60 percent of international financial transactions are denominated in dollars. For decades the dollar has also been the world's principal reserve currency; in 1996, the dollar accounted for approximately two-thirds of the world's foreign exchange reserves" (255).

Many of the world's currencies are pegged against the dollar. Some countries, such as Ecuador, El Salvador, and Panama, have gone even further and eliminated their own currency (see dollarization) in favor of the United States dollar. The dollar continues to dominate global currency reserves, with 63.9% held in dollars, as compared to 26.5% held in euros (see Reserve Currency).

Since 1999, the dollar's dominance has begun to be eroded by the euro, which represents a larger size economy, and has the prospect of more countries adopting the euro as their national currency. The euro inherited the status of a major reserve currency from the German Mark (DM), and since then its contribution to official reserves has risen as banks seek to diversify their reserves and trade in the eurozone continues to expand.^[1]

As with the dollar, quite a few of the world's currencies are pegged against the euro. They are usually Eastern European currencies like the Estonian kroon and the Bulgarian lev, plus several west African currencies like the Cape Verdean escudo and the CFA franc. Other European countries, while not being EU members, have adopted the euro due to currency unions with member states, or by unilaterally superseding their own currencies: Andorra, Monaco, Montenegro, San Marino, and Vatican City.

As of December 2006^[update], the euro surpassed the dollar in the combined value of cash in circulation. The value of euro notes in circulation has risen to more than €610 billion, equivalent to US$800 billion at the exchange rates at the time (today equivalent to circa US$968 billion).^[2]

World currency

In the foreign exchange market and international finance, a world currency, supranational currency, or global currency refers to a currency in which the vast majority of international transactions take place and which serves as the world's primary reserve currency. In March 2009, as a result of the global economic crisis, China and Russia have pressed for urgent consideration of a global currency and a UN panel has proposed greatly expanding the IMF's SDRs or Special Drawing Rights.

Currencies have many forms depending on several properties: type of issuance, type of issuer and type of backing. The particular configuration of those properties leads to different types of money. The pros and cons of a currency are strongly influenced by the type proposed. Consider, for example, the properties of a complementary currency.

source: http://en.wikipedia.org/wiki/World_currency

Economic factors

These include: (a)economic policy, disseminated by government agencies and central banks, (b)economic conditions, generally revealed through economic reports, and other economic indicators.

Economic policy comprises government fiscal policy (budget/spending practices) and monetary policy (the means by which a government's central bank influences the supply and "cost" of money, which is reflected by the level of interest rates).
Economic conditions include:
Government budget deficits or surpluses
The market usually reacts negatively to widening government budget deficits, and positively to narrowing budget deficits. The impact is reflected in the value of a country's currency.
Balance of trade levels and trends
The trade flow between countries illustrates the demand for goods and services, which in turn indicates demand for a country's currency to conduct trade. Surpluses and deficits in trade of goods and services reflect the competitiveness of a nation's economy. For example, trade deficits may have a negative impact on a nation's currency.
Inflation levels and trends
Typically a currency will lose value if there is a high level of inflation in the country or if inflation levels are perceived to be rising [. This is because inflation erodes purchasing power, thus demand, for that particular currency. However, a currency may sometimes strengthen when inflation rises because of expectations that the central bank will raise short-term interest rates to combat rising inflation.
Economic growth and health
Reports such as GDP, employment levels, retail sales, capacity utilization and others, detail the levels of a country's economic growth and health. Generally, the more healthy and robust a country's economy, the better its currency will perform, and the more demand for it there will be.
Productivity of an economy
Increasing productivity in an economy should positively influence the value of its currency. Its effects are more prominent if the increase is in the traded sector [3].

Determinants of FX Rates

Trading characteristics

**Most traded currencies**^[2]
Currency distribution of reported FX market turnover
Rank	Currency	ISO 4217 code (Symbol)	% daily share (April 2007)
1	United States dollar	USD ($)	86.3%
2	Euro	EUR (€)	37.0%
3	Japanese yen	JPY (¥)	17.0%
4	Pound sterling	GBP (£)	15.0%
5	Swiss franc	CHF (Fr)	6.8%
6	Australian dollar	AUD ($)	6.7%
7	Canadian dollar	CAD ($)	4.2%
8-9	Swedish krona	SEK (kr)	2.8%
8-9	Hong Kong dollar	HKD ($)	2.8%
10	Norwegian krone	NOK (kr)	2.2%
11	New Zealand dollar	NZD ($)	1.9%
12	Mexican peso	MXN ($)	1.3%
13	Singapore dollar	SGD ($)	1.2%
14	South Korean won	KRW (₩)	1.1%
Other			14.5%
Total			200%

There is no unified or centrally cleared market for the majority of FX trades, and there is very little cross-border regulation. Due to the over-the-counter (OTC) nature of currency markets, there are rather a number of interconnected marketplaces, where different currencies instruments are traded. This implies that there is not a single exchange rate but rather a number of different rates (prices), depending on what bank or market maker is trading, and where it is. In practice the rates are often very close, otherwise they could be exploited by arbitrageurs instantaneously. Due to London's dominance in the market, a particular currency's quoted price is usually the London market price. A joint venture of the Chicago Mercantile Exchange and Reuters, called Fxmarketspace opened in 2007 and aspired but failed to the role of a central market clearing mechanism.

The main trading center is London, but New York, Tokyo, Hong Kong and Singapore are all important centers as well. Banks throughout the world participate. Currency trading happens continuously throughout the day; as the Asian trading session ends, the European session begins, followed by the North American session and then back to the Asian session, excluding weekends.

Fluctuations in exchange rates are usually caused by actual monetary flows as well as by expectations of changes in monetary flows caused by changes in gross domestic product (GDP) growth, inflation (purchasing power parity theory), interest rates (interest rate parity, Domestic Fisher effect, International Fisher effect), budget and trade deficits or surpluses, large cross-border M&A deals and other macroeconomic conditions. Major news is released publicly, often on scheduled dates, so many people have access to the same news at the same time. However, the large banks have an important advantage; they can see their customers' order flow.

Currencies are traded against one another. Each pair of currencies thus constitutes an individual product and is traditionally noted XXXYYY or YYY/XXX, where YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX is expressed (called base currency). For instance, EURUSD or USD/EUR is the price of the euro expressed in US dollars, as in 1 euro = 1.5465 dollar. Out of convention, the first currency in the pair, the "base" currency, was the stronger currency at the creation of the pair. The second currency, counter currency or "term" currency, was the weaker currency at the creation of the pair. Currencies are occasionally incorrectly quoted with the pairs inverted e.g. EUR/USD but this is incorrect. The "/" acts the same as the divide mathematical operator and derives the actual exchange rate. e.g. an amount of $140,000 equates to €100,000. $140,000/€100,000 = $/€ = USD/EUR = a rate of 1.4 hence EURUSD or USD/EUR. See Exchange_rate

The factors affecting XXX will affect both XXXYYY and XXXZZZ. This causes positive currency correlation between XXXYYY and XXXZZZ.

On the spot market, according to the BIS study, the most heavily traded products were:

EURUSD: 27%
USDJPY: 13%
GBPUSD (also called cable): 12%

and the US currency was involved in 86.3% of transactions, followed by the euro (37.0%), the yen (17.0%), and sterling (15.0%) (see table). Volume percentages for all individual currencies should add up to 200%, as each transaction involves two currencies.

Trading in the euro has grown considerably since the currency's creation in January 1999, and how long the foreign exchange market will remain dollar-centered is open to debate. Until recently, trading the euro versus a non-European currency ZZZ would have usually involved two trades: EURUSD and USDZZZ. The exception to this is EURJPY, which is an established traded currency pair in the interbank spot market. As the dollar's value has eroded during 2008, interest in using the euro as reference currency for prices in commodities (such as oil), as well as a larger component of foreign reserves by banks, has increased dramatically. Transactions in the currencies of commodity-producing countries, such as AUD, NZD, CAD, have also increased.

Retail foreign exchange brokers

There are two types of retail brokers offering the opportunity for speculative trading: retail foreign exchange brokers and market makers. Retail traders (individuals) are a small fraction of this market and may only participate indirectly through brokers or banks. Retail brokers, while largely controlled and regulated by the CFTC and NFA might be subject to foreign exchange scams.^[8]^[9] At present, the NFA and CFTC are imposing stricter requirements, particularly in relation to the amount of Net Capitalization required of its members. As a result many of the smaller, and perhaps questionable brokers are now gone. It is not widely understood that retail brokers and market makers typically trade against their clients and frequently take the other side of their trades. This can often create a potential conflict of interest and give rise to some of the unpleasant experiences some traders have had. A move toward NDD (No Dealing Desk) and STP (Straight Through Processing) has helped to resolve some of these concerns and restore trader confidence, but caution is still advised in ensuring that all is as it is presented.

[edit] Non-bank Foreign Exchange Companies

Non-bank foreign exchange companies offer currency exchange and international payments to private individuals and companies. These are also known as foreign exchange brokers but are distinct in that they do not offer speculative trading but currency exchange with payments. I.e., there is usually a physical delivery of currency to a bank account. Send Money Home offer an in-depth comparison into the services offered by all the major non-bank foreign exchange companies.

It is estimated that in the UK, 14% of currency transfers/payments^[10] are made via Foreign Exchange Companies.^[11] These companies' selling point is usually that they will offer better exchange rates or cheaper payments than the customer's bank. These companies differ from Money Transfer/Remittance Companies in that they generally offer higher-value services.

[edit] Money Transfer/Remittance Companies

Money transfer companies/remittance companies perform high-volume low-value transfers generally by economic migrants back to their home country. In 2007, the Aite Group estimated that there were $369 billion of remittances (an increase of 8% on the previous year). The four largest markets (India, China, Mexico and the Philippines) receive $95 billion. The largest and best known provider is Western Union with 345,000 agents globally.

Send Money Home is an international money transfer price comparison site that allows consumers access to a range of alternative products and rates available when remitting (transferring) money worldwide.

Foreign exchange market

The foreign exchange market (currency, forex, or FX) trades currencies. It lets banks and other institutions easily buy and sell currencies. ^[1]

The purpose of the foreign exchange market is to help international trade and investment. A foreign exchange market helps businesses convert one currency to another. For example, it permits a U.S. business to import European goods and pay Euros, even though the business's income is in U.S. dollars.

In a typical foreign exchange transaction a party purchases a quantity of one currency by paying a quantity of another currency. The modern foreign exchange market started forming during the 1970s when countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed as per the Bretton Woods system.

The foreign exchange market is unique because of

its trading volumes,
the extreme liquidity of the market,
its geographical dispersion,
its long trading hours: 24 hours a day except on weekends (from 22:00 UTC on Sunday until 22:00 UTC Friday),
the variety of factors that affect exchange rates.
the low margins of profit compared with other markets of fixed income (but profits can be high due to very large trading volumes)
the use of leverage

As such, it has been referred to as the market closest to the ideal perfect competition, notwithstanding market manipulation by central banks. According to the Bank for International Settlements,^[2] average daily turnover in global foreign exchange markets is estimated at $3.98 trillion. Trading in the world's main financial markets accounted for $3.21 trillion of this. This approximately $3.21 trillion in main foreign exchange market turnover was broken down as follows:

$1.005 trillion in spot transactions
$362 billion in outright forwards
$1.714 trillion in foreign exchange swaps
$129 billion estimated gaps in reporting.

source: http://en.wikipedia.org/wiki/Forex_trading

Modifications to IP addressing

[edit] IP blocking and firewalls

Main articles: IP blocking and Firewall

Firewalls are common on today^[update]'s Internet. For increased network security, they control access to private networks based on the public IP of the client. Whether using a blacklist or a whitelist, the IP address that is blocked is the perceived public IP address of the client, meaning that if the client is using a proxy server or NAT, blocking one IP address might block many individual people.

[edit] IP address translation

Main article: Network Address Translation

Multiple client devices can appear to share IP addresses: either because they are part of a shared hosting web server environment or because an IPv4 network address translator (NAT) or proxy server acts as an intermediary agent on behalf of its customers, in which case the real originating IP addresses might be hidden from the server receiving a request. A common practice is to have a NAT hide a large number of IP addresses in a private network. Only the "outside" interface(s) of the NAT need to have Internet-routable addresses^[5].

Most commonly, the NAT device maps TCP or UDP port numbers on the outside to individual private addresses on the inside. Just as a telephone number may have site-specific extensions, the port numbers are site-specific extensions to an IP address.

In small home networks, NAT functions usually take place in a residential gateway device, typically one marketed as a "router". In this scenario, the computers connected to the router would have 'private' IP addresses and the router would have a 'public' address to communicate with the Internet. This type of router allows several computers to share one public IP address.

Static and dynamic IP addresses

When a computer is configured to use the same IP address each time it powers up, this is known as a Static IP address. In contrast, in situations when the computer's IP address is assigned automatically, it is known as a Dynamic IP address.

[edit] Method of assignment

Static IP addresses are manually assigned to a computer by an administrator. The exact procedure varies according to platform. This contrasts with dynamic IP addresses, which are assigned either by the computer interface or host software itself, as in Zeroconf, or assigned by a server using Dynamic Host Configuration Protocol (DHCP). Even though IP addresses assigned using DHCP may stay the same for long periods of time, they can generally change. In some cases, a network administrator may implement dynamically assigned static IP addresses. In this case, a DHCP server is used, but it is specifically configured to always assign the same IP address to a particular computer. This allows static IP addresses to be configured centrally, without having to specifically configure each computer on the network in a manual procedure.

In the absence or failure of static or stateful (DHCP) address configurations, an operating system may assign an IP address to a network interface using state-less autoconfiguration methods, such as Zeroconf.

[edit] Uses of dynamic addressing

Dynamic IP addresses are most frequently assigned on LANs and broadband networks by Dynamic Host Configuration Protocol (DHCP) servers. They are used because it avoids the administrative burden of assigning specific static addresses to each device on a network. It also allows many devices to share limited address space on a network if only some of them will be online at a particular time. In most current desktop operating systems, dynamic IP configuration is enabled by default so that a user does not need to manually enter any settings to connect to a network with a DHCP server. DHCP is not the only technology used to assigning dynamic IP addresses. Dialup and some broadband networks use dynamic address features of the Point-to-Point Protocol.

[edit] Sticky dynamic IP address

A sticky dynamic IP address or sticky IP is an informal term used by cable and DSL Internet access subscribers to describe a dynamically assigned IP address that does not change often. The addresses are usually assigned with the DHCP protocol. Since the modems are usually powered-on for extended periods of time, the address leases are usually set to long periods and simply renewed upon expiration. If a modem is turned off and powered up again before the next expiration of the address lease, it will most likely receive the same IP address.

[edit] Address autoconfiguration

RFC 3330 defines an address block, 169.254.0.0/16, for the special use in link-local addressing for IPv4 networks. In IPv6, every interface, whether using static or dynamic address assignments, also receives a local-link address automatically in the fe80::/10 subnet.

These addresses are only valid on the link, such as a local network segment or point-to-point connection, that a host is connected to. These addresses are not routable and like private addresses cannot be the source or destination of packets traversing the Internet.

When the link-local IPv4 address block was reserved, no standards existed for mechanisms of address autoconfiguration. Filling the void, Microsoft created an implementation that called Automatic Private IP Addressing (APIPA). Due to Microsoft's market power, APIPA has been deployed on millions of machines and has, thus, become a de facto standard in the industry. Many years later, the IETF defined a formal standard for this functionality, RFC 3927, entitled Dynamic Configuration of IPv4 Link-Local Addresses.

[edit] Uses of static addressing

Some infrastructure situations have to use static addressing, such as when finding the Domain Name System host that will translate domain names to IP addresses. Static addresses are also convenient, but not absolutely necessary, to locate servers inside an enterprise. An address obtained from a DNS server comes with a time to live, or caching time, after which it should be looked up to confirm that it has not changed. Even static IP addresses do change as a result of network administration (RFC 2072)

IPv6 private addresses

Just as IPv4 reserves addresses for private or internal networks, there are blocks of addresses set aside in IPv6 for private addresses. In IPv6, these are referred to as unique local addresses (ULA). RFC 4193 sets aside the routing prefix fc00::/7 for this block which is divided into two /8 blocks with different implied policies (cf. IPv6) The addresses include a 40-bit pseudorandom number that minimizes the risk of address collisions if sites merge or packets are misrouted.

Early designs (RFC 3513) used a different block for this purpose (fec0::), dubbed site-local addresses. However, the definition of what constituted sites remained unclear and the poorly defined addressing policy created ambiguities for routing. The address range specification was abandoned and must no longer be used in new systems.

Addresses starting with fe80: — called link-local addresses — are assigned only in the local link area. The addresses are generated usually automatically by the operating system's IP layer for each network interface. This provides instant automatic network connectivity for any IPv6 host and means that if several hosts connect to a common hub or switch, they have an instant communication path via their link-local IPv6 address. This feature is used extensively, and invisibly to most users, in the lower layers of IPv6 network administration (cf. Neighbor Discovery Protocol).

None of the private address prefixes may be routed in the public Internet.

IPv4 private addresses

Main article: Private network

Early network design, when global end-to-end connectivity was envisioned for communications with all Internet hosts, intended that IP addresses be uniquely assigned to a particular computer or device. However, it was found that this was not always necessary as private networks developed and public address space needed to be conserved (IPv4 address exhaustion).

Computers not connected to the Internet, such as factory machines that communicate only with each other via TCP/IP, need not have globally-unique IP addresses. Three ranges of IPv4 addresses for private networks, one range for each class (A, B, C), were reserved in RFC 1918. These addresses are not routed on the Internet and thus their use need not be coordinated with an IP address registry.

Today, when needed, such private networks typically connect to the Internet through network address translation (NAT).

IANA-reserved private IPv4 network ranges
	Start	End	No. of addresses
24-bit Block (/8 prefix, 1 x A)	10.0.0.0	10.255.255.255	16,777,216
20-bit Block (/12 prefix, 16 x B)	172.16.0.0	172.31.255.255	1,048,576
16-bit Block (/16 prefix, 256 x C)	192.168.0.0	192.168.255.255	65,536

Any user may use any of the reserved blocks. Typically, a network administrator will divide a block into subnets; for example, many home routers automatically use a default address range of 192.168.0.0 - 192.168.0.255 (192.168.0.0/24).

[edit] IPv4 address depletion

Main article: IPv4 address exhaustion

The IP version 4 address space is rapidly nearing exhaustion of available, officially assignable address blocks.

[edit] IP version 6 addresses

Main article: IPv6#Addressing

An illustration of an IP address (version 6), in hexadecimal and binary.

The rapid exhaustion of IPv4 address space, despite conservation techniques, prompted the Internet Engineering Task Force (IETF) to explore new technologies to expand the Internet's addressing capability. The permanent solution was deemed to be a redesign of the Internet Protocol itself. This next generation of the Internet Protocol, aimed to replace IPv4 on the Internet, was eventually named Internet Protocol Version 6 (IPv6) in 1995^[3]^[4] The address size was increased from 32 to 128 bits or 16 octets, which, even with a generous assignment of network blocks, is deemed sufficient for the foreseeable future. Mathematically, the new address space provides the potential for a maximum of 2¹²⁸, or about 3.403 × 10³⁸ unique addresses.

The new design is not based on the goal to provide a sufficient quantity of addresses alone, but rather to allow efficient aggregation of subnet routing prefixes to occur at routing nodes. As a result, routing table sizes are smaller, and the smallest possible individual allocation is a subnet for 2⁶⁴ hosts, which is the size of the square of the size of the entire IPv4 Internet. At these levels, actual address utilization rates will be small on any IPv6 network segment. The new design also provides the opportunity to separate the addressing infrastructure of a network segment—that is the local administration of the segment's available space—from the addressing prefix used to route external traffic for a network. IPv6 has facilities that automatically change the routing prefix of entire networks should the global connectivity or the routing policy change without requiring internal redesign or renumbering.

The large number of IPv6 addresses allows large blocks to be assigned for specific purposes and, where appropriate, to be aggregated for efficient routing. With a large address space, there is not the need to have complex address conservation methods as used in classless inter-domain routing (CIDR).

All modern^[update] desktop and enterprise server operating systems include native support for the IPv6 protocol, but it is not yet widely deployed in other devices, such as home networking routers, voice over Internet Protocol (VoIP) and multimedia equipment, and network peripherals.

Example of an IPv6 address:

2001:0db8:85a3:08d3:1319:8a2e:0370:7334

IP versions

Two versions of the Internet Protocol (IP) are currently in use (see IP version history for details), IP Version 4 and IP Version 6. Each version defines an IP address differently. Because of its prevalence, the generic term IP address typically still refers to the addresses defined by IPv4.

An illustration of an IP address (version 4), in both dot-decimal notation and binary.

[edit] IP version 4 addresses

Main article: IPv4#Addressing

IPv4 uses 32-bit (4-byte) addresses, which limits the address space to 4,294,967,296 (2³²) possible unique addresses. IPv4 reserves some addresses for special purposes such as private networks (~18 million addresses) or multicast addresses (~270 million addresses). This reduces the number of addresses that can be allocated to end users and, as the number of addresses available is consumed, IPv4 address exhaustion is inevitable. This foreseeable shortage was the primary motivation for developing IPv6, which is in various deployment stages around the world and is the only strategy for IPv4 replacement and continued Internet expansion.

IPv4 addresses are usually represented in dot-decimal notation (four numbers, each ranging from 0 to 255, separated by dots, e.g. 208.77.188.166). Each part represents 8 bits of the address, and is therefore called an octet. In less common cases of technical writing, IPv4 addresses may be presented in hexadecimal, octal, or binary representations. In most representations each octet is converted individually.

[edit] IPv4 networks

In the early stages of development of the Internet protocol,^[1] network administrators interpreted an IP address as a structure of network number and host number. The highest order octet (most significant eight bits) was designated the network number and the rest of the bits were called the rest field or host identifier and were used for host numbering within a network. This method soon proved inadequate as additional networks developed that were independent from the existing networks already designated by a network number. In 1981, the Internet addressing specification was revised with the introduction of classful network architecture.^[2]

Classful network design allowed for a larger number of individual network assignments. The first three bits of the most significant octet of an IP address was defined as the class of the address. Three classes (A, B, and C) were defined for universal unicast addressing. Depending on the class derived, the network identification was based on octet boundary segments of the entire address. Each class used successively additional octets in the network identifier, thus reducing the possible number of hosts in the higher order classes (B and C). The following table gives an overview of this system.

Class	First octet in binary	Range of first octet	Network ID	Host ID	Possible number of networks	Possible number of hosts
A	0XXXXXXX	0 - 127	a	b.c.d	2⁷ = 128	2²⁴ - 2 = 16,777,214
B	10XXXXXX	128 - 191	a.b	c.d	2¹⁴ = 16,384	2¹⁶ - 2 = 65,534
C	110XXXXX	192 - 223	a.b.c	d	2²¹ = 2,097,152	2⁸ - 2 = 254

The articles 'subnetwork' and 'classful network' explain the details of this design.

Although classful network design was a successful developmental stage, it proved unscalable in the rapid expansion of the Internet and was abandoned when Classless Inter-Domain Routing (CIDR) was created for the allocation of IP address blocks and new rules of routing protocol packets using IPv4 addresses. CIDR is based on variable-length subnet masking (VLSM) to allow allocation and routing on arbitrary-length prefixes.

Today, remnants of classful network concepts function only in a limited scope as the default configuration parameters of some network software and hardware components (e.g. netmask), and in the technical jargon used in network administrators' discussions.

IP address

An Internet Protocol (IP) address is a numerical label that is assigned to devices participating in a computer network utilizing the Internet Protocol for communication between its nodes.^[1] An IP address serves two principal functions in networking: host identification and location addressing. The role of the IP address has also been characterized as follows: "A name indicates what we seek. An address indicates where it is. A route indicates how to get there."^[2]

The original designers of TCP/IP defined an IP address as a 32-bit number^[1] and this system, now named Internet Protocol Version 4 (IPv4), is still in use today. However, due to the enormous growth of the Internet and the resulting depletion of the address space, a new addressing system (IPv6), using 128 bits for the address, was developed in 1995^[3] and last standardized by RFC 2460 in 1998.^[4] Although IP addresses are stored as binary numbers, they are usually displayed in human-readable notations, such as 208.77.188.166 (for IPv4), and 2001:db8:0:1234:0:567:1:1 (for IPv6).

The Internet Protocol also has the task of routing data packets between networks, and IP addresses specify the locations of the source and destination nodes in the topology of the routing system. For this purpose, some of the bits in an IP address are used to designate a subnetwork. The number of these bits is indicated in CIDR notation, appended to the IP address, e.g., 208.77.188.166/24.

With the development of private networks and the threat of IPv4 address exhaustion, a group of private address spaces was set aside by RFC 1918. These private addresses may be used by anyone on private networks. They are often used with network address translators to connect to the global public Internet.

The Internet Assigned Numbers Authority (IANA) manages the IP address space allocations globally. IANA works in cooperation with five Regional Internet Registries (RIRs) to allocate IP address blocks to Local Internet Registries (Internet service providers) and other entities.

source: http://en.wikipedia.org/wiki/IP_address

Software

Providers often bill for dedicated servers on a fixed monthly price to include specific software packages. Over the years, software vendors realized the significant market opportunity to bundle their software with dedicated servers. They have since started introducing pricing models that allow dedicated hosting providers the ability to purchase and resell software based on reduced monthly fees.

Microsoft offers software licenses through a program called the Service Provider License Agreement. The SPLA model provides use of Microsoft products through a monthly user or processor based fee. SPLA software includes the Windows Operating System, Microsoft SQL Server, Microsoft Exchange Server, Microsoft SharePoint and shoutcast hosting, and many other server based products.

Dedicated Server Providers usually offer the ability to select the software you want installed on a dedicated server. Depending on the overall usage of the server, this will include your choice of operating system, database, and specific applications. Servers can be customized and tailored specific to the customer’s needs and requirements.

Other software applications available are specialized web hosting specific programs called control panels. Control panel software is an all inclusive set of software applications, server applications, and automation tools that can be installed on a dedicated server. Control panels include integration into web servers, database applications, programming languages, application deployment, server administration tasks, and include the ability to automate tasks via a web based front end.

Most dedicated servers are packaged with a control panel. Control panels are often confused with management tools, but these control panels are actually web based automation tools created to help automate the process of web site creation and server management. Control panels should not be confused with a full server management solution by a dedicated hosting provider.

Security

Dedicated hosting server providers utilize extreme security measures to ensure the safety of data stored on their network of servers. Providers will often deploy various software programs for scanning systems and networks for obtrusive invaders, spammers, hackers, and other harmful problems such as Trojans, worms, eggdrops and crashers (Sending multiple connections). Linux and Windows use different software for security protection.

Management

Main article: Managed dedicated server

To date, no industry standards have been set to clearly define the management role of dedicated server providers. What this means is that each provider will use industry standard terms, but each provider will define them differently. For some dedicated server providers, fully managed is defined as having a web based control panel while other providers define it as having dedicated system engineers readily available to handle all server and network related functions of the dedicated server provider.

Server management can include some or all of the following:

Operating system updates
Application updates
Server monitoring
SNMP hardware monitoring
Application monitoring
Application management
Technical support
Firewall services
Antivirus updates
Security audits
DDoS protection and mitigation
Intrusion detection
Backups and restoration
Disaster recovery
DNS hosting service
Load balancing
Database administration
Performance tuning
Software installation and configuration
User management
Programming consultation

Dedicated hosting server providers define their level of management based on the services they provide. In comparison, fully managed could equal self managed from provider to provider.

Administrative maintenance of the operating system, often including upgrades, security patches, and sometimes even daemon updates are included. Differing levels of management may include adding users, domains, daemon configuration, or even custom programming.

Dedicated server hosting providers may provide the following types of server managed support:

Fully Managed - Includes monitoring, software updates, reboots, security patches and operating system upgrades. Customers are completely hands-off.
Managed - Includes medium level of management, monitoring, updates, and a limited amount of support. Customers may perform specific tasks.
Self Managed - Includes regular monitoring and some maintenance. Customers provide most operations and tasks on dedicated server.
Unmanaged - Little to no involvement from service provider. Customers provide all maintenance, upgrades, patches, and security.

Note: The provider will continue to maintain security on the network regardless of support level.

Bandwidth and connectivity

Bandwidth refers to the data transfer rate or the amount of data that can be carried from one point to another in a given time period (usually a second) and is often represented in bits (of data) per second (bit/s). For example, visitors to your server, web site, or applications utilize bandwidth as the traffic moves from your server to the Internet and vice versa. Connectivity refers to the “access providers” that supply bandwidth, or data transfer rate, through various connection points across a network or footprint to one or multiple data centers where dedicated servers are housed.

Bandwidth measurements are defined (per telecom standards) as the following:

First – 95th (measured using average bits and speed of transfer)
Second – Unmetered (measured in speed or bits)
Third – Total Transfer (measured in bytes transferred)

95th Method: line speed, billed on the 95th percentile, average or peak usage, refers to the speed in which data flows from the server or device. Line speed is measured in bits per second (or kilobits per second, megabits per second or gigabits per second).

Unmetered Method: The second bandwidth measurement is unmetered service where providers cap or control the “top line” speed for a server. Top line speed in unmetered bandwidth is the total Mbit/s allocated to the server and configured on the switch level. For example, if you purchase 10 Mbit/s unmetered bandwidth, the top line speed would be 10 Mbit/s. 10 Mbit/s would result in the provider controlling the speed transfers take place while providing the ability for the dedicated server owner to not be charged with bandwidth overages. Unmetered bandwidth services usually incur an additional charge.

Total Transfer Method: Some providers will calculate the Total Transfer, the measurement of actual data leaving and arriving, measured in bytes. Measurement between providers varies, though it is either the total traffic in, the total traffic out, whichever is the greater or the sum of the two.

One of the reasons for choosing to outsource dedicated servers is the availability of high powered networks from multiple providers. As dedicated server providers utilize massive amounts of bandwidth, they are able to secure lower volume based pricing to include a multi-provider blend of bandwidth. To achieve the same type of network without a multi-provider blend of bandwidth, a large investment in core routers, long term contracts, and expensive monthly bills would need to be in place. The expenses needed to develop a network without a multi-provider blend of bandwidth does not make sense economically for hosting providers.

Many dedicated server providers include a service level agreement based on network uptime. Some dedicated server hosting providers offer a 100% uptime guarantee on their network. By securing multiple vendors for connectivity and using redundant hardware, providers are able to guarantee higher uptimes; usually between 99-100% uptime if they are a higher quality provider. One aspect of higher quality providers is they are most likely to be multi-homed across multiple quality uplink providers, which in turn, provides significant redundancy in the event one goes down in addition to potentially improved routes to destinations.

Bandwidth consumption over the last several years has shifted from a per megabit usage model to a per gigabyte usage model. Bandwidth was traditionally measured in line speed access that included the ability to purchase needed megabits at a given monthly cost. As the shared hosting model developed, the trend towards gigabyte or total bytes transferred, replaced the megabit line speed model so dedicated server providers started offering per gigabyte.

Prominent players in the dedicated server market offer large amounts of bandwidth ranging from 500 gigabytes to 3000 gigabytes using the “overselling” model. It is not uncommon for major players to provide dedicated servers with 1Terabyte (TB) of bandwidth or higher. Usage models based on the byte level measurement usually include a given amount of bandwidth with each server and a price per gigabyte after a certain threshold has been reached. Expect to pay additional fees for bandwidth overage usage. For example, if a dedicated server has been given 3000 gigabytes of bandwidth per month and the customer uses 5000 gigabytes of bandwidth within the billing period, the additional 2000 gigabytes of bandwidth will be invoiced as bandwidth overage. Each provider has a different model for billing. As of yet, no industry standards have been set.

source: http://en.wikipedia.org/wiki/Dedicated_hosting_service

Operating system support

Availability, price and employee familiarity often determines which operating systems are offered on dedicated servers. Variations of Linux (open source operating systems) are often included at no charge to the customer. Commercial operating systems include Microsoft Windows Server, provided through a special program called Microsoft SPLA. Red Hat Enterprise is a commercial version of Linux offered to hosting providers on a monthly fee basis. The monthly fee provides OS updates through the Red Hat Network using an application called yum. Other operating systems are available from the open source community at no charge. These include CentOS, Fedora Core, Debian, and many other Linux distributions or BSD systems FreeBSD, NetBSD, OpenBSD.

Support for any of these operating systems typically depends on the level of management offered with a particular dedicated server plan. Operating system support may include updates to the core system in order to acquire the latest security fixes, patches, and system-wide vulnerability resolutions. Updates to core operating systems include kernel upgrades, service packs, application updates, and security patches that keep server secure and safe. Operating system updates and support relieves the burden of server management from the dedicated server owner.

Dedicated hosting service

A dedicated hosting service, dedicated server, or managed hosting service is a type of Internet hosting in which the client leases an entire server not shared with anyone. This is more flexible than shared hosting, as organizations have full control over the server(s), including choice of operating system, hardware, etc. Server administration can usually be provided by the hosting company as an add-on service. In some cases a dedicated server can offer less overhead and a larger return on investment. Dedicated servers are most often housed in data centers, similar to colocation facilities, providing redundant power sources and HVAC systems. In contrast to colocation, the server hardware is owned by the provider and in some cases they will provide support for your operating system or applications.

Disadvantages

Name-based virtual hosts have some disadvantages:

They do not properly support secure websites (HTTPS). All name-based virtual hosts using the same IP address must share the same digital certificate. This is because the SSL/TLS handshake takes place before the hostname is sent to the server. Thus the server doesn't know which encryption key to use when the connection is made. An extension to the TLS protocol, part of RFC 3546 - Transport Layer Security (TLS) Extensions, specifies a way for the client to provide the requested host name as part of the handshake, but it is not yet widely implemented. Some of the shared hosting providers require their customers to get Unique IP in order to properly set up HTTPS.
If the Domain Name System is malfunctioning, it is harder to use a name-based virtually-hosted website. Ordinarily, in this case, the user could fall back to using the IP address to contact the system, as in http://192.0.2.0/ (invalid IP for example only). However, the web browser doesn't know what hostname to send to the server, but a name-based virtual host requires it. In this case, the default web host is sent back to the browser for that IP address. Therefore most hosters offer an alternative access method like http://192.0.2.0/~virtualhostname to provide access in such cases.
They will not work with browsers that do not send the hostname as part of requests. This is true for older HTTP/1.0 browsers that have not retrofitted the host field feature from the HTTP/1.1 protocol. (The "Host" header that distinguishes between various DNS names sharing a single IP address was optional in HTTP/1.0; it is mandatory in HTTP/1.1, issued in 1999 as RFC 2616.) Since nearly every webbrowser that is currently used supports the HTTP/1.1 protocol and thus also virtual hosting, this is not a real issue.
Improperly configured file permissions with shared file systems might give other (compromised) users or processes system-wide access to these files, such as credential files for database access or modification of existing files.

Implementation

Shared web hosting can be accomplished in two ways: name-based and IP-based, although some control panels allow a mix of name-based and IP-based on the one server.

[edit] Name-based

In name-based virtual hosting, also called shared IP hosting, the virtual hosts serve multiple hostnames on a single machine with a single IP address.

When a web browser requests a resource from a web server using HTTP/1.1 it includes the requested hostname as part of the request. The server uses this information to determine which web site to show the user.

[edit] IP-based

In IP-based virtual hosting, also called dedicated IP hosting, each virtual host has a different IP address. The web server is configured with multiple physical network interfaces, or virtual network interfaces on the same physical interface. The web server software uses the IP address the client connects to in order to determine which web site to show the user. The primary reason for a site to use a dedicated IP is to be able to use its own SSL certificate rather than a shared certificate.

Shared web hosting service

A shared web hosting service or virtual hosting service or derive host refers to a web hosting service where many websites reside on one web server connected to the Internet. Each site "sits" on its own partition, or section/place on the server to keep it separate from other sites. This is generally the most economical option for hosting as many people share the overall cost of server maintenance.

Description

The hosting service must include system administration since it is shared by many users; this is a benefit for users who do not want to deal with it, but a hindrance to power users who want more control. In general shared hosting will be inappropriate for users who require extensive software development outside what the hosting provider supports. Almost all applications intended to be on a standard web server work fine with a shared web hosting service. But on the other hand, shared hosting is cheaper than other types of hosting such as dedicated server hosting. Shared hosting usually has usage limits and most hosting providers have extensive reliability features in place. ^[1]

Shared hosting typically uses a web-based control panel system, such as cPanel, Ensim, DirectAdmin, Plesk, InterWorx, H-Sphere or one of many other control panel products. Most of the large hosting companies use their own custom developed control panel. Control panels and web interfaces can cause controversy however, since web hosting companies sometimes sell the right to use their control panel system to others. Attempting to recreate the functionality of a specific control panel is common, which leads to many lawsuits over patent infringement.^[2]

In shared hosting, the provider is generally responsible for managing servers, installing server software, security updates, technical support, and other aspects of the service. Most servers are based on the Linux operating system and LAMP (software bundle), which is driven by the low cost of open source software. But some providers offer Microsoft Windows-based or FreeBSD-based solutions. For example, the Plesk and Ensim control panels are both available for two operating systems, Linux and Windows. Versions for either OS have very similar interfaces and functionality, with the exception of OS-specific differences (for example: ASP.NET, SQL Server and Access support under Windows; MySQL under Linux).

There are thousands of shared hosting providers in the United States alone. They range from mom-and-pop shops and small design firms to multi-million-dollar providers with hundreds of thousands of customers. A large portion of the shared web hosting market is driven through pay per click (PPC) advertising or Affiliate programs.

Shared web hosting can also be done privately by sharing the cost of running a server in a colocation centre; this is called cooperative hosting.

source: http://en.wikipedia.org/wiki/Shared_web_hosting_service

Name:
Email Address: