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Traffic between a VPN client and a VPN server is encrypted on the client, and decrypted on the server.

As the VPN server passes that traffic through the internet, can the VPN server's ISP see that traffic?

6

When it is not encrypted in other ways (like https), then yes, they can. A VPN appears just like any other customer to their ISP.

However, your VPN traffic is mixed with that of all other users of the VPN. From the point of view of the ISP, all traffic seems to originate from the VPN endpoint and they can not discern which connection belongs to which user of the VPN service. Unless, of course:

  • the traffic includes some unencrypted information which allows to identify the user
  • the number of users of the VPN is small enough that they can cooperate with your own ISP and look for traffic correlation (they notice that the VPN sends/receives data whenever you send/receive the same amount of data). This is, by the way, also a well-known weakness of the poor-man's VPN service TOR.
  • The VPN service cooperates with them

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