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An IP address serves two principal functions. It identifies the host, or more specifically its network interface, and it provides the location of the host in the network, and thus the capability of establishing a path to that host. Its role has been characterized as follows: "A name indicates what we seek. An address indicates where it is. A route indicates how to get there." The header of each IP packet contains the IP address of the sending host, and that of the destination host.
An IPv4 address has a size of 32 bits, which limits the address space to 4294967296 (232) addresses. Of this number, some addresses are reserved for special purposes such as private networks (~18 million addresses) and multicast addressing (~270 million addresses).
IPv4 addresses are usually represented in dot-decimal notation, consisting of four decimal numbers, each ranging from 0 to 255, separated by dots, e.g., 172.16.254.1. Each part represents a group of 8 bits (an octet) of the address. In some cases of technical writing, IPv4 addresses may be presented in various hexadecimal, octal, or binary representations.
In IPv6, the address size was increased from 32 bits in IPv4 to 128 bits, thus providing up to 2128 (approximately 3.403×1038) addresses. This is deemed sufficient for the foreseeable future.
The intent of the new design was not to provide just a sufficient quantity of addresses, but also redesign routing in the Internet by allowing more efficient aggregation of subnetwork routing prefixes. This resulted in slower growth of routing tables in routers. The smallest possible individual allocation is a subnet for 264 hosts, which is the square of the size of the entire IPv4 Internet. At these levels, actual address utilization ratios will be small on any IPv6 network segment. The new design also provides the opportunity to separate the addressing infrastructure of a network segment, i.e. the local administration of the segment's available space, from the addressing prefix used to route traffic to and from external networks. 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 manual renumbering.