That better way is known as a switch. A switch looks like a hub, but it is a bit smarter. It takes all the connections in, but doesn't actually connect them all together. Instead, it waits until it hears something from one device intended for another, and then makes the connection. This means that they have a private conversation. As soon as the conversation is done, it connects another two devices. And this process repeats, over and over. This makes for faster network connections and actually allows for more network traffic than with a hub.
When a switch is first turned on, it doesn't know whos who in the digital zoo. So the first time a packet of traffic comes down the pike it sends it to all the devices. When one responds, it makes a note in RAM of the MAC address for the device that responded and what port the response came from. Using this data, it learns which device is where, so the next time it just builds the connection.
This works great in LANs but they are not big enough or bright enough to run the entire Internet.
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