The main purpose of VPN and Proxy is to provide a connection between the host computer and the remote computer by hiding host computer’s IP to make it secure against intruders.

The basic difference between VPN and Proxy is that a Proxy server allows to hide, conceal and make your network id anonymous by hiding your IP address. It provides features like Firewall and network data filtering, network connection sharing and Data caching. This first became popular where some countries tried to limit their citizen’s Internet access.

On the other hand, a VPN has benefits over the proxy by creating a tunnel over the public Internet between computers or hosts. A tunnel is formed by the encapsulation of the packets by any encryption protocol. Encryption protocol such as Open VPN, IPsec, PPTP, L2TP, SSL and TLS, encrypts the data and adds a new header. This has helped companies to minimize the expenditures of leased lines and the high-speed routing services of the public internet to transfer data more securely.

1 Comparison Chart

Basis for comparison	VPN	Proxy
Security	Provides encryption, authentication and integrity protection to the traffic.	It does not provide any type of security.
Works on	Firewall	Browsers
Tunnel creation	A secure link is created between the end users.	Tunnel formation does not take place.
Protocols used	PTTP, L2TP, IPsec, etc.	HTTP, TELNET, SMTP, and FTP.

2 Definition of VPN

A VPN (Virtual Private Network) is an encrypted connection between private networks and a public network, similar to the internet. The V stands for Virtual, and N stands for network. The information from a private network is securely transported to a public network. This virtual connection is made up of packets.

VPN creates a network which is physically public but virtually private. It is private because it guarantees the privacy inside the organization and it is virtual because it does not use real private WANs.

In addition, Virtual Private Network provides a mechanism for employing authentication, integrity protection including encryption. VPN offers a high amount of security and yet does not require any special cabling on behalf of the organization that wants to use it. Thus, a VPN combines the advantages of a public network (cheap and easily available) with those of a private network (secure and reliable).

How a VPN works?

The idea of a VPN is actually quite simple to understand. Suppose an organization has two networks, Network 1 and Network 2, which are physically apart from each other and we want to connect them using the VPN approach. In such case, we set up two firewalls, Firewall 1 and Firewall 2. Firewalls perform the encryption and decryption. With this configuration in mind lets us understand how the VPN protects the traffic passing between any two hosts on the two different networks.
For this, let us assume that host X on Network 1 wants to send a data packet to host Y on Network 2. This transmission would work as follows.

1. Host X creates packets, inserts its own IP address as the source address and the IP address of host Y as the destination address.
2. The packet reaches Firewall 1. Firewall 1 now adds new headers to the packet. In these new headers, it changes the source IP address of the packet from that of host X to its own address. It also changes the destination IP address of the packet from that of host Y to the IP address of Firewall 2. It also performs the packet encryption and authentication, depending on the settings and sends the modifies packet over the Internet.
3. The packet reaches Firewall 2 over the Internet, via one or more routers, as usual. Firewall 2 discards the outer header and performs the appropriate decryption and other cryptographic function as necessary. This yields the original packet, as was created by host X in Step 1. It then takes a look at the plain text contents of the packet and realizes that the packet is meant for host Y. Therefore, it delivers the packet to host Y.

3 Definition of Proxy

A proxy server is a computer or software which act as an intermediary between the client and actual server. It usually hides the client’s IP and uses the anonymous network ID for connecting to the network. Proxy servers decide the flow of application traffic level and perform network data filtering, network connection sharing and data caching.

How a proxy servers works?

• An internal user contacts the proxy server using a TCP/IP application, such as HTTP and Telnet.
• The proxy server asks the user about the remote host with which the user wants to set up a connection for actual communication (i.e. its domain name or IP address, etc.). It also asks the user ID and password required to access the services of the proxy server.
• Then the user provides this information to the application gateway.
• The proxy server now accesses the remote host on behalf of the user and passes the packets of the user to the remote host.

Proxy servers are generally more secure than packet filters. Its reason is that here we simply detect whether a user is allowed to work with a TCP/IP application or not instead of examining every packet against several rules. The demerit of a proxy server is the overhead regarding the number of connections.

Conclusion

Both VPN and Proxy serves almost the same purpose, but a VPN provides more security than a proxy server.