An IP address is a numerical label that identifies a device or network interface on a network that uses the Internet Protocol, the basic set of rules for sending data across the internet. It works much like a postal address: routers read the destination address on each packet of data and forward it until it reaches the right machine, and replies are sent back to the sender's address.
Every computer, phone, server and blockchain node that talks to the internet needs an IP address, although many devices share a public address behind a home router. Addresses are coordinated globally by the Internet Assigned Numbers Authority (IANA), which hands blocks to five regional internet registries, and they are then assigned to internet service providers and organisations. In finance, IP addresses matter for fraud checks, sanctions controls and the privacy of crypto users.
IP address in plain terms
Think of the internet as a huge postal system and each connected device as a house. Before a letter can be delivered, it needs an address on the envelope. An IP address is that address for data. When someone opens a website, their device sends a request stamped with its own address and the website's address, and the answer comes back the same way.
People rarely see these numbers because names such as a website's domain are translated into addresses automatically, the way a contact list hides phone numbers. An address also gives a rough clue to where a device is, such as the country or city, which is why websites can show local content and why some services block visitors from certain places.
IPv4 and IPv6
Two versions of the protocol are in use:
| Feature | IPv4 | IPv6 |
|---|---|---|
| Address length | 32 bits | 128 bits |
| Typical format | Four numbers from 0 to 255, such as 192.0.2.1 | Eight groups of hexadecimal digits, such as 2001:db8::1 |
| Number of addresses | About 4.3 billion | About , effectively unlimited |
The pool of unallocated IPv4 addresses held by IANA ran out in 2011. Network operators have stretched the supply with network address translation, which lets many private devices share one public address, while IPv6 adoption grows gradually. Many networks run both versions side by side, a set-up known as dual stack, so that devices can reach services on either protocol.
An address is often written with a suffix such as /24, called a prefix length, which shows how many of the leading bits identify the network and how many are left for individual devices. Registries and providers allocate addresses in these blocks rather than one at a time.
Static, dynamic, public and private addresses
- Public addresses are reachable from the wider internet and are unique worldwide at any moment.
- Private addresses are reserved ranges, such as those starting 10. or 192.168., used inside homes and offices and never routed on the open internet.
- Static addresses stay the same over time and are typical for servers.
- Dynamic addresses are leased to a device for a period and can change, which is normal for home and mobile connections.
IP addresses in payments and compliance
Payment firms and banks use IP data as one signal among many. Fraud detection systems compare the location of a login or card payment with the customer's usual pattern, combine it with device fingerprinting, and flag sudden changes that may indicate account takeover. Exchanges and fintech apps use IP-based geo-blocking to keep users in restricted or sanctioned regions out, and regulators have penalised firms that ignored IP evidence showing customers in sanctioned countries, a recurring theme in OFAC sanctions enforcement.
IP data is imperfect. Virtual private networks, proxies and the Tor network hide a user's real address, mobile carriers may route traffic through distant gateways, and shared addresses can link unrelated people. Firms therefore treat IP location as evidence to weigh, not proof.
IP addresses and crypto networks
Public blockchains run on peer-to-peer networks in which each node connects directly to others by IP address. When a wallet broadcasts a transaction, the first node to relay it may be able to associate the transaction with the sender's address, and researchers have shown that network-level monitoring can sometimes link transactions to IP addresses. Users who want more privacy route their traffic through Tor or a VPN, run their own full node, or use wallets that support such features, a topic covered under Tor integration. Network attacks that isolate a node from honest peers also exploit how nodes choose which IP addresses to connect to.
Latency between addresses, discussed under network latency, affects how quickly blocks and trades spread, and an attacker who can intercept traffic between two addresses may attempt a man-in-the-middle attack.