Windows 2000 supports IPSec, which can provide for secure network communication between clients by encrypting IP-based data and using Kerberos for authentication. The beauty of IPSec is that is not application-based encryption (which would require that an application on both the sending and receiving computer supported encryption) but rather network-stack based. As such, any TCP/IP-based application is capable of utilizing IPSec, because encryption (and decryption) actually happens in the protocol stack. As such, the encryption is completely application-independent and totally transparent to the user.
Windows 2000 supports IPSec in two modes – transport mode and tunnel mode. In tunnel mode, two endpoints (IP addresses) must be defined, and IPSec will encrypt data (it can also be used for authentication of systems only) that travels through the tunnel. This setup is commonly used in connecting remote offices via VPNs over the Internet. Note that the systems communicating need not necessarily be Windows 2000-based, since IPSec is an open standard. In transport mode, policies can defined which designate when and how IPSec encryption should be used on the network. For example, you could specify that only traffic moving from a client to TCP ports 80 or 23 on a server must be encrypted, and that all other traffic need not be. Similarly, you could specify that a client must initiate encrypted communication with a server or the server will not respond. The level and degree of IPSec use on your network is only dictated by your own needs (don’t forget that any encryption will create CPU overhead).