Punycode is a special encoding used to convert Unicode characters to ASCII, which is a smaller, more restricted character set than Unicode. Punycode is used to encode internationalized domain names (IDNs) as a defense against address spoofing. Firefox allows enabling IDN punycode instead of non-Latin letters and Unicode symbols. This can be very useful, as you can find out if the currently opened web page is a phishing site or just a non-official mirror of some web site which you would like to avoid.
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