Overview of NAT
NAT first became popular as a way to deal with the IPv4 address shortage and to avoid all the difficulty of reserving IP addresses. NAT has proven particularly popular in countries other than the United States, which (for historical reasons) have fewer address-blocks allocated per capita. It has become a standard feature in routers for home and small-office Internet connections, where the price of extra IP addresses would often outweigh the benefits. NAT also adds to security as it disguises the internal network’s structure: all traffic appears to outside parties as if it originates from the gateway machine.
In a typical configuration, a local network uses one of the designated “private” IP address subnets (the RFC 1918 Private Network Addresses are 192.168.x.x, 172.16.x.x through 172.31.x.x, and 10.x.x.x - using CIDR notation, 192.168/16, 172.16/12, and 10/8), and a router on that network has a private address (such as 192.168.0.1) in that address space. The router is also connected to the Internet with a single “public” address (known as “overloaded” NAT) or multiple “public” addresses assigned by an ISP. As traffic passes from the local network to the Internet, the source address in each packet is translated on the fly from the private addresses to the public address(es). The router tracks basic data about each active connection (particularly the destination address and port). When a reply returns to the router, it uses the connection tracking data it stored during the outbound phase to determine where on the internal network to forward the reply; the TCP or UDP client port numbers are used to demultiplex the packets in the case of overloaded NAT, or IP address and port number when multiple public addresses are available, on packet return. To a system on the Internet, the router itself appears to be the source/destination for this traffic.
It has been argued that the wide adoption of IPv6 would make NAT unnecessary, as NAT is a method of handling the shortage of IPv4 address space.