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I imagine throughput is not affected too much, but I wondered if lag is, since everything has to go through extra layers between the cable and the OS. For a web-page or even streaming video that's fine, a few ms extra lag is nothing, but for running a game server it could be a factor.

What do I need to know - is it an issue? For instane if I have a virtual instance with same CPU/RAM as a physical PC, both connected to the same network, will there be any measurable difference or is any overhead so small as to be unimportant compared to the distance between the server and the client/user PCs over the internet?

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It shouldn't be an issue, no. The latency of network communications is orders of magnitude larger than the time required for RAM access, which in turn is orders of magnitude larger than the time required for CPU operations.

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