The idea of an "overlay network" is that some form of encapsulation is used to decouple a network service from the underlying infrastructure. Per-service state is restricted at the edge of the network and the underlying physical infrastructure of the core has little or no visibility of the actual services offered. This layering approach enables the core network to scale and evolve independently of the offered services.
The best example of this is the internet itself. Internet is an overlay network on top of a solid optical infrastructure. The underlying infrastructure is called the "underlay network" The majority of paths in the Internet are now formed over a DWDM infrastructure that creates a virtual topology between routers and utilizes several forms of switching to interconnect routers together. Also, the idea of MPLS L2/L3 VPNs is essentially an overlay network of services on top of an MPLS transport network. The label edge routers (LER) encapsulates every packet arriving from an enterprise site with two labels. A VPN label identifying essentially the enterprise context and a transport label that identifies how the packet should be forwarded through the core MPLS network. In this way, this is a double overlay.
One of the main advantages of overlays is that they provide the ability to rapidly and incrementally deploy new functions through edge-centric innovations. New solutions or applications can be organically added to the existing underlay infrastructure by adding intelligence to the edge nodes of the network. This is why overlays often emerge as solutions to address the requirements of specific applications over an existing basic infrastructure, where either the required functions are missing in the underlay network, or the cost of total infrastructure upgrade is prohibitive from an economic standpoint.
The best example of this is the internet itself. Internet is an overlay network on top of a solid optical infrastructure. The underlying infrastructure is called the "underlay network" The majority of paths in the Internet are now formed over a DWDM infrastructure that creates a virtual topology between routers and utilizes several forms of switching to interconnect routers together. Also, the idea of MPLS L2/L3 VPNs is essentially an overlay network of services on top of an MPLS transport network. The label edge routers (LER) encapsulates every packet arriving from an enterprise site with two labels. A VPN label identifying essentially the enterprise context and a transport label that identifies how the packet should be forwarded through the core MPLS network. In this way, this is a double overlay.
One of the main advantages of overlays is that they provide the ability to rapidly and incrementally deploy new functions through edge-centric innovations. New solutions or applications can be organically added to the existing underlay infrastructure by adding intelligence to the edge nodes of the network. This is why overlays often emerge as solutions to address the requirements of specific applications over an existing basic infrastructure, where either the required functions are missing in the underlay network, or the cost of total infrastructure upgrade is prohibitive from an economic standpoint.
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