VXLAN - another network virtualization technology, somewhat similar to VLAN but much more powerful.

To some extent, VLAN can be considered as an overlay network. I.e. VLAN allows one to create multiple virtual segments on top of an existing network segment. However, there are some significant limitations. VLAN assumes that there is already a broadcast domain underneath, so it'll split it into multiple sub-domains by tagging frames. Additionally, there cannot be more than 4096 VLANs sharing the same underlying L2 segment. There is simply 12 spare bits to encode the VLAN ID field in the Ethernet frame format.

VXLAN technology also creates virtual broadcast domains out of an existing network. So, it's also sort of an overlay networking. However, it does so in a completely different fashion. Instead of relying on the underlying L2 segment capabilities, VXLAN requires that all participating nodes already have an L3 (i.e. IP) connectivity. On every VXLAN node, outgoing Ethernet frames are captured, then wrapped into UDP datagrams (encapsulated), and sent over an L3 network to the destination VXLAN node. On arrival, Ethernet frames are extracted from UDP packets (decapsulated) and injected into the destination's network interface. This technique is called tunneling. As a result, VXLAN nodes create a virtual L2 segment, hence an L2 broadcast domain.

Of course, nothing prevents us from putting all the VXLAN nodes in a single L3/L2 segment. So, then VXLAN would be just a way to overcome the limitation of VLAN on the number of networks per segment. However, usually, VXLAN is used over multiple interconnected L3 segments.

🤯  Most of the real-world VXLANs probably reside in one or few tightly connected data centers. However, since VXLAN requires only IP to IP connectivity of the participating nodes, it essentially allows one to turn arbitrary internetwork nodes into a virtualized L2 segment. While impractical, such a virtual L2 segment can be spanning multiple WANs or even a part of the Internet. This is rather mind-blowing.

🤯  From some perspective, VXLAN can be even seen as inverse to VLAN. VLAN splits a single L2 segment (and broadcast domain) into multiple non-intersecting segments that can be used to set up multiple L3 segments. VXLAN, on the contrary, can combine multiple L3 segments back into one virtual L2 segment. This is also rather mind-blowing.