The next layer of security is authentication. This is similar to logging on a computer or network. All of these are based on the same principle of each side having a key that matches the other side. A challenge handshake is also very common. It can be as simple as matching passwords.
Authentication is verified and transmission is started.
Now that the computers are sure they are talking to the correct machine, another data transmission process is started. This is where the actual transmitted data is protected. This section is called the data encryption level. Encryption of the data is always considered essential to any transmission of proprietary data. There are many forms of packet sniffers available that can be used against non secure data - all of these are available for both the novice and professional hacker.