Teredo is a tool developed by Microsoft to allow computers using different versions of the Internet Protocol addressing system to communicate with each other. The way that Teredo works is to create a special tunnel for data. Since the tunnel can pass through firewalls that protect private networks from the Internet, it also can create security issues.
IPv4 Vs. IPv6
The fourth version of the Internet Protocol, developed in 1981, gives computers addresses that are four blocks of three digit numbers. This 32-bit system has approximately 4.3 billion addresses, which is not enough to accommodate every computer on the Internet. IPv6 uses addresses that are 128-bits long. Its address space is so large that if every person on Earth had a million addresses, it wouldn't even make a dent in the available pool. The problem is that the IPv6 isn't backward-compatible, so a system using it will have trouble connecting to systems using IPv4. To solve this problem, networks either need to use both protocols at once, or need to translate between them.
Teredo and NAT
One of the solutions to the shortage of IPv4 addresses is the Network Address Translation system that lets multiple computers on a private network share a single public IP address. Many of the NAT systems that assign private addresses and route traffic can't work with IPv6 traffic. Teredo is a tool that takes IPv6 data from the Internet and repackages it so that it can go through a special tunnel in the NAT server to the computer that needs to receive it.
Firewalls and IP Filtering
A firewall is a device that protects a private network from potentially dangerous traffic on the Internet. It does this through a process called IP filtering. Firewalls look at the addresses from which they receive data or requests for data. If the other computer is considered safe, they pass the data or request through. If it isn't, the request gets filtered out, stopping the potentially dangerous computer from connecting to the network.
The Teredo Problem
Teredo packages all of the traffic that it receives into standard IPv4 packets that pass through the firewall in a special virtual tunnel. The special Teredo tunnel usually doesn't get checked by the firewall's IP filtering system. This means that traffic that the firewall would block if it could identify it won't get blocked, compromising network security.
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