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I noticed when i run streams that it's bitrate is close to my max Internet speed it lags a lot when using VPN but run smoothly without VPN. Bandwidth monitor programs shows that the speed through the Ethernet when running the streams using vpn is at max so the play should run smoothly! So, does vpn encryption(or vpn in general) consume part of the traffic?

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Encryption doesn't blow up the size of a data stream. There's some setup overhead but it is negligible. The lag you're seeing is most likely due to the CPU cycles required to do the encryption and decryption at the ends of the VPN circuit. The CPUs involved might be unable to encrypt/decrypt at your full link bitrate.

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While I would certainly agree that the overhead of encryption does increase the size of the stream by a small amount, I'm not sure "negligible" can be said for all or even most cases. "Slightly" I think is a better description, because if you're tight on bandwidth then the increase isn't "negligible" if it can put you over. – Darth Android Jun 6 '12 at 21:41
I don't think this is the case, the vpn encryption seems to use significant amount of traffic; i tracked the traffic record from my isp and for downloading 50.4MB single http file it consumed 57.7MB with vpn and 51.5MB without VPN. This mean there is about 15% wasted traffic and i can't think of anything else that could waste this except the vpn encryption! – mores Jun 6 '12 at 22:33
Depending on the type of VPN and the size of the packets, this overhead might or might not be normal. Downloading larger files should maximize packet size, so a overhead of 15% is rather high IMHO. – Gurken Papst Jun 6 '12 at 22:50

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