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Lets talk about the basic terminology used in the VXLAN environment VTEP and VNIs. First go understand what VXLAN is all about. 

VXLAN(Virtual Extensible Local Area Network)
As with VLAN today, VXLAN is designed to provide the same Ethernet Level 2 services as VLAN, but with greater extensibility and flexibility. In a large multitenant environment, VXLAN provides a flexible, multitenant solution over a shared physical infrastructure. It operates by using IP plus UDP to travel over the physical network.

VTEP (VXLAN Tunnel End Point)
VTEP stands for VXLAN Tunnel End Point. Edge devices on a VXLAN network are known as VTEPs. An endpoint or start point is the point at which original user data frames are encapsulated or decapsulated within a VXLAN tunnel.

Fig 1.1- VTEPs

A VTEP can be an independent network device or a virtual switch deployed on a server. VTEP sources encapsulate the original data frames sent by the source server into VXLAN packets, which are then sent to the destination VTEP over an IP network. VXLAN packets are then decapsulated by the destination VTEP into the original data frames and forwarded to the destination server.

Through its IP interface, a VTEP device also discovers the remote VTEPs for its VXLAN segments and learns the mappings from remote MAC addresses to VTEPs. VTEPs are functional units that create Layer 2 connectivity over transport IP networks based on logical topologies.

The VXLAN segments do not depend on the underlying network topology, and vice versa, the underlying IP network between the VTEPs does not depend on the VXLAN overlay. The packets are routed based on the outer IP address header, which has the initiating VTEP's address as the source address and the terminating VTEP's address as the destination address.

VNI (VXLAN Tunnel Interface)
VNI stands for VXLAN Tunnel Interface .VXLAN Network Identifiers (VNI) identify VXLANs and are similar to VLAN IDs. Since the VNI is 24 bits, we can create 16,777,215 ( ~16 million) VXLANs. 

There are more of those 4094 VLANs with the 12-bit VLAN ID when compared to those 4094. As an Ethernet frame's VLAN ID field has only 12 bits, VLAN cannot be used to achieve network isolation in data centers.

To address this issue, VNI was developed. Identifies a tenant as a VLAN ID, and is similar to a VNI. Multiple tenants with different VNIs cannot communicate over Layer 2.

VXLAN packet encapsulation, a 24-bit VNI is added to a VXLAN packet, which enables VXLAN to isolate a large number of tenants.

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