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Decapsulation is the process of opening up encapsulated data that are usually sent in the form of packets over a communication network. It can be literally defined as the process of opening a capsule, which, in this case, refers to encapsulated or wrapped-up data.
When data are sent through a communication network that follows the OSI or TCP/IP protocol suite, they are usually sent as discrete packets of information. While sending a particular data packet, each layer of the communication model adds a bit of information to the raw data packet for the understanding of the data at each layer of the receiving end of the communication. Data encapsulation is the process wherein data are transmitted from the upper level to the lower level of the protocol stack (outgoing transmission from one network to another). Each layer consists of a certain amount of information (i.e., the header) and the data. As it moves down each transport level, the data are repacked until they reach the network access layer (the destination network). This packaging of data is called encapsulation. At the end, the header is used to retrieve the data from the encapsulated package.
Data decapsulation is simply the reverse of encapsulation. This is when an incoming transmission (to be received by the destination computer) is unpacked as it moves up the protocol stack. The data at the bottom of the layer are packaged several times to ensure security. As they are sent along the transport layer, these data are unpacked until they reach the network application awaiting the data. The information in the header is used to determine which network the data are to be delivered to.