Which protocol can be used to create over 16 million isolated virtual networks?

The correct choice is VXLAN, which stands for Virtual Extensible LAN. This protocol is specifically designed to address the limitations of traditional VLANs in terms of scalability. While standard VLANs can create up to 4096 unique IDs (due to the limitations of 12 bits), VXLAN utilizes 24 bits for its segment ID, enabling the creation of over 16 million unique virtual networks.

VXLAN encapsulates Layer 2 Ethernet frames in Layer 4 UDP packets, allowing for encapsulation of traffic over Layer 3 IP networks. This flexibility and higher capacity make VXLAN an ideal choice for large cloud environments and data centers looking to segment their networks efficiently and effectively.

Understanding VXLAN's capability for extensive network isolation is critical in cloud computing scenarios, where multiple tenants or workloads need to coexist without interfering with one another, thus demonstrating why it is the most suitable answer in this context.