A keylogger can be a highly effective security application, however it can also be a used as a serious infringement on privacy. Read more on how much of a threat a keylogger can be.

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Keylogging Programs (keyloggers, key loggers, keystroke loggers, key recorders, key trappers, key capture programs, etc.) also belong to the same group of tools that monitor user activity on the machine level. It records such information as every keystroke, including the system keys. Installing a keylogger onto a PC is a relatively simple procedure; it may be installed like any other software, or it may be installed as a Trojan or Virus.

Keylogging Hardware Device (keystroke recording device, hardware keylogger, etc.) is a tiny hardware device that can be attached in between a keyboard and a computer or built into the keyboard case. It keeps a record of all keystrokes typed on the keyboard. The recording process is totally transparent to the end user. Keylogging Hardware Devices do not require any software on the victim's PC to be able to log all keystrokes (inc. passwords, etc). They may be covertly attached to the victim's PC by a colleague, cleaner, visitor, etc - the PC does not even need to be switched on when the keylogger is plugged in! The keylogger may then be removed at a later time and its contents (recorded keystrokes / passwords, etc) downloaded at the assailant's convenience. The photograph to the right illustrates the simplicity of attaching a keylogger to the victims PC. This is just one make and model, other keyloggers do exist that are even more covert than this example!

Keylogging programs and devices present a serious threat to the security of individual and networked computing systems.

One particularly scary and dangerous feature of all keylogging programs and keylogging hardware devices is recording of computer user's keystrokes for the purpose of monitoring computer activity. While you are typing out your password and credit card details online it is possible a hacker can be recording your every keystroke. So keystroke monitoring feature is main core of any spy software. Without such core feature any spy software is absolutely ineffective and unavailing.

Keylogging Programs and Hardware Devices also walk the fine line between security administration and security breach. As with scanners and sniffers, the question comes down to intent. Some companies use commercial loggers to monitor employees suspected of resource misuse. While most employees might feel this invades their privacy, such monitoring can be useful for capturing of corporate spies. Law enforcement agencies may also use keystroke loggers to gather evidence on suspected criminals. On the other hand, staffers may download freeware keystroke loggers from hacker warez sites to turn the tables and illicitly spy on their boss or coworkers.

Article from PrivacyKeyboard.com