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1) In common industry usage, a sniffer (with lower case "s") is a program that monitors and analyzes network traffic, detecting bottlenecks and problems. Using this information, a network manager can keep traffic flowing efficiently.
A sniffer can also be used legitimately or illegitimately to capture data being transmitted on a network. A network router reads every packet of data passed to it, determining whether it is intended for a destination within the router's own network or whether it should be passed further along the Internet. A router with a sniffer, however, may be able to read the data in the packet as well as the source and destination addresses. Sniffers are often used on academic networks to prevent traffic bottlenecks caused by file-sharing applications.
The term "sniffer" is occasionally used for a program that analyzes data other than network traffic. For example, a database could be analyzed for certain kinds of duplication.
2) Sniffer (with a capital "S") is a trademark owned by NetScout. The generic term may have originated from Sniffer, which is said to be the first packet capture and decode software that was offered for the purpose of network analysis and troubleshooting.