The protocol operates in the license-free ISM band at 2.45 GHz. It reaches speeds of 723.3 kbps downstream with a simultaneous 57.6 kbps upstream. In order to avoid interfering with other protocols which may use the 2.45 GHz band, the Bluetooth protocol divides the band into 79 channels and changes channels up to 1600 times per second.
Every Bluetooth device can simultaneously maintain up to 7 connections. Every device can be configured to constantly announce its presence to nearby devices, in order to establish a connection. It is also possible to password protect a connection between two devices, so that no others can listen in.
Bluetooth should be compared to WiFi, a faster protocol requiring more expensive hardware that covers bigger distances and uses the same frequency range.
See definition from Personal Telco Wiki, http://www.personaltelco.net/index.cgi/BlueTooth
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