What Are Residential Proxies? The Dark Side of Online Privacy

When you’re busy trying to make your online marketing campaigns a success, having to fight fraudsters is a major hassle. The problem with ad fraud (other than the fact that it steals your money) is that fraudsters are always coming up with new ways to defraud your business and escape the consequences.

One tool that some fraudsters have learned to employ is the residential proxy.

But what exactly is a residential proxy? How do residential proxies work anyway? And perhaps even more importantly, what does it have to do with ad fraud?

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What Are Residential Proxies?

A residential proxy is a technique that can be used to obscure the IP address of someone (or something, like a bot) using the internet. This works by routing traffic through an “intermediary server,” which can be any device capable of accepting web traffic and passing it along to another device or website.

Since the activity is being stopped and rerouted through a different device, that device’s IP address is relayed to the destination website instead of the actual origin device. This conceals the real website visitor’s IP address from the website—and thus, security admins, hackers, and others.

How do Residential Proxies Work?

Residential proxies specifically route their traffic through residential IP addresses—which means IP addresses that are, as defined by Proxyway, “registered under an internet service provider that offers services to consumers.” This may differ from proxy servers, which include data centers designed specifically for businesses to use for large computing needs.

Fraudsters typically use anonymous residential proxy networks to hide their IP address, though there are proxy services that are “transparent,” meaning that they keep the traffic source’s IP data visible to others.

Some proxy servers have a “rotating proxy” feature that assigns a new IP address to the internet traffic it routes with every new connection. These rotating residential proxies are ripe for abuse by fraudsters who need an easy way to disguise all of their fraudulent traffic with ease.

How Are Residential Proxies Used?

There are many different ways to use residential proxies for both legitimate and illegitimate purposes. Some examples include:

Testing Ad Placements

Companies selling ad space could use a residential proxy to help verify the ads that they place on their website (in conjunction with a custom bot/program script to test the ad). As noted by residential proxy service provider Bright Data, you could use a proxy server when “checking and verifying ads displayed on your pages allowing you to recognize and block suspicious ads.” 

Disguising Bot Traffic

Fraudsters often use residential proxies (and other IP masking techniques) to hide their IP addresses so their bots can get through basic anti-fraud filters more easily or work around IP blocking strategies.

By hiding behind a “trustworthy” IP address, a bot program can clear simple IP address whitelists/blacklists and gain access to resources that they couldn’t otherwise reach. This is often used to empower other schemes using bots. Such as:

Web Scraping

Bots are often used to scrape websites to quickly steal content and code that allows fraudsters to create imitation websites to trick their victims later on. With residential proxies, fraudsters can hide where the scraper bot came from, delaying the detection of their own schemes.

Scalping Products

Scalpers who use bots to buy limited availability products may use residential proxies to hide their bots from IP blocking attempts by storefronts that are trying to stop scalpers. This allows the bot to slip by the IP block and buy up whatever electronics, clothes, or other luxury goods in mass quantities so the bot’s user can resell them at a markup when the original seller runs out of stock.

Ad Fraud

Fraudsters who use bots often rely on residential proxies, VPNs, and other IP masking techniques to hide the source of the traffic creating the clicks, form fills, and impressions they’re trying to get paid for.

After all, if you could easily track all of the leads, clicks, or impressions generated by a single affiliate to a single IP address, it would be all too easy to identify that affiliate as a fraudster. By hiding behind a large number of proxy IP addresses, they can make it harder to identify their fraudulent actions.

Cybersecurity Penetration Testing

Cybersecurity companies might use residential proxies and other IP masking techniques during a cybersecurity penetration test to recreate the methods used by actual cybercriminals. They can also use residential proxies to evaluate the effectiveness of network security measures such as firewalls and intrusion detection systems (IDS).

Simulating attacks from various locations better prepares the cybersecurity response teams. It helps them understand the patterns and potential sources of attacks, improving incident response strategies.

Of course, it’s important that these proxies are used ethically during testing. Cybersecurity professionals must ensure they have permission to use the residential IPs and are not violating privacy laws or service terms.

Getting Around Region-Based Content Restrictions. 

Many VPNs and residential proxy services actively advertise the fact that you can set your IP address to appear as if it’s coming from another country to get around a region-based content restriction on sites like YouTube or Netflix. Consumers use this feature all the time to gain access to video streaming content that might be blocked in their home country.

These are just a few of the legitimate and illegitimate uses for residential proxies. As with any tool, there will always be someone who looks for a way to abuse residential proxies for their own personal profit.

How Do Proxy Services Get Access to Real Residential IP Addresses?

Everyone loves free stuff. However, the reality is that nothing is actually free. There’s always a cost. So-called “free” residential proxy services are one example.

Some residential proxy service providers (not all, but some) will offer consumers a “free” proxy service app for their home computer, phone, or other devices that will give them access to a proxy network. When the consumer downloads the app, it installs software that allows the proxy service provider remote access to their network or computer so they can route other customers’ traffic through the consumer’s network.

Whether the consumer realizes that they’re hosting someone else’s traffic through their network (and thus, having that stranger’s activities traced back to them) varies by consumer and proxy service. Some might disclose how their residential proxy service works upfront in their sales pitch and advertising, others might bury it on some page of a “Terms of Service” agreement that 99.9% of their customers will never read, and some might neglect to mention that they’re giving others access to the consumer’s network at all.

Non-residential proxy services and VPNs might have large, formal data centers that they route all of their traffic through to anonymize it—though these service providers typically charge for the privilege.

The Problem with Residential Proxies: Ad Fraud and IP Blocking

So, why are residential proxies a problem for your online marketing efforts? A large part of the problem is that these proxies can be an easy way for fraudsters to hide and make their bad traffic look legitimate for just long enough to collect the money and run.

However, there are other problems with proxies aside from delaying the detection of ad fraud.

One of the bigger problems with residential proxies is that they can make traditional fraud prevention techniques like IP blocking completely irrelevant (or worse, counter-productive). The risk of residential proxies is one of the primary reasons you shouldn’t rely on IP blocking as an anti-fraud tactic.

Why? Because, instead of stopping the fraudster, all you’re doing is blocking a potentially legitimate IP address and all of the traffic that would normally come from that source. The fraudster doesn’t care if you block that IP address—their residential proxy tool will simply assign them a new IP address and they’ll keep going on like nothing ever happened.

Meanwhile, what happens to the consumer (or consumers) who have had their IP address blocked through no fault of their own? What if they, at some future point, want to interact with your brand or advertising in the future? The problem is that, if you’ve blacklisted their IP address, they won’t be able to. By blocking their IP address, you will be preventing them from legitimately interacting with your online advertising.

If the IP address being used in the proxy belongs to a large communal dwelling (like an apartment building with free public Wi-Fi) or to a business, you could be throwing out dozens or hundreds of potential customers because of a single malicious actor.

Fight Residential Proxy Abuse with an Ad Fraud Solution

So, if IP blocking isn’t sufficient to stop the abuse of residential proxy services by fraudsters, how can you protect your business’ ad campaigns from fraudulent bot traffic that leverages proxy networks?

One of the best solutions is to use an ad fraud solution that can differentiate fraudulent traffic from real traffic using more than just the traffic’s IP address. For example, Anura’s ad fraud solution analyzes hundreds of data points about every website visitor and compares that analysis to a database of real customer conversion data spanning years of activity.

Instead of a shallow analysis based on a single datapoint, Anura works to positively identify fraud as it happens so you can avoid paying for fake clicks, leads, or impressions caused by bots regardless of what IP address fakery the fraudster uses.

At Anura, we stand by the power of our technology. That's why we guarantee a 99.999% accuracy rate when we mark a visitor as BAD using our Anura Script integration.

Don’t let your money go to lining a fraudster’s pockets. Stop fraud cold by leveraging the power of a real-time ad fraud solution—which will also help you get more ROI for every dollar you spend on online advertising since you won’t be paying parasites for fake leads.

Reach out now to get started!

Residential Proxy FAQs

What are the most common types of ad fraud associated with residential proxies?

Residential proxies can be used in several types of ad fraud, including click fraud, impression fraud, and affiliate fraud.

How do residential proxies differ from datacenter proxies?

Residential proxies are IP addresses provided by internet service providers to homeowners and are linked to actual devices in homes, making them appear more legitimate. This credibility can make it harder for ad fraud detection systems to flag them as suspicious. On the other hand, data center proxies are hosted in data centers and are associated with non-residential IP addresses. These are easier to detect and block because they often come from large blocks of IPs that are known to be associated with data centers.

Can residential proxies affect the accuracy of geo-targeting in digital campaigns?

Since the traffic appears to come from the IP location of the residential proxy rather than the user's actual location, campaigns can end up being displayed to users in completely different geographical areas. This misdirection can lead to wasted ad spend and missed opportunities to engage with your target audience.

How can businesses detect and prevent 'proxy farms' from skewing their digital analytics?

Proxy farms, which utilize large numbers of proxies to create or mimic internet traffic, can be detected through behavioral analytics and pattern recognition. Anomalies such as unnatural spikes in traffic from similar IP ranges or geographic inconsistencies in traffic sources are common red flags.

What steps should I take if I detect ad fraud from residential proxies?

Once ad fraud is detected, you should first assess the scope and impact of the fraud. Then, block the IP addresses associated with the fraudulent activities, adjust your ad strategies to mitigate future risks, and consider legal actions if necessary.

Additionally, sharing information about fraud patterns with industry bodies can help improve overall defenses against ad fraud.