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A botnet is a group of computers connected in a coordinated fashion for malicious purposes. Each computer in a botnet is called a bot. These bots form a network of compromised computers, which is controlled by a third party and used to transmit malware or spam, or to launch attacks.
A botnet may also be known as a zombie army.
Originally, botnets were created as a tool with valid purposes in Internet relay chat (IRC) channels. Eventually, hackers exploited the vulnerabilities in IRC networks and developed bots to perform malicious activities such as password theft, keystroke logging, etc.
An attacker will often target computers not safeguarded with firewalls and/or anti-virus software. A botnet manipulator can get control of a computer in a variety of ways, but most frequently does so via viruses or worms. Botnets are significant because they have become tools that both hackers and organized crime use to perform illegal activities online. For example, hackers use botnets to launch coordinated denial-of-service attacks, while organized crime uses botnets as ways to spam, or send a phishing attack that is then used for identify theft.
Even more concerning is the industry that has sprung up around botnets in which bot herders build botnets specifically to "rent" to the highest bidder. Whether they send spam, adware/spyware, viruses/worms, etc., botnets can be used to perpetrate just about any type of digital attack.