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GPS is a satellite-based navigation system that works by receiving positional data from satellites and calculating locations.
GPS receivers locate the satellites transmitting the incoming signals and use CDMA (Code Division Multi Access) method to identify individual codes. This means GPS system is able to identify each satellite's unique ID to calculate precise location and navigational data. Here are the steps:

All satellites have clocks set to exactly the same time
All satellites know their exact position from data sent to them from the systems controllers
Each satellite transmits its position and a time signal
The signals travel to the receiver delayed by distance traveled
The differences in distance traveled mark each satellite appear to have a different time
The receiver calculates its own position.
Is the GPS free to use?

GPS is free as stated in the Presidential Decision Document (29 March 1996) and by Congress in the 1998 Public Law (105-85)

Both state that the U.S. "will continue to provide the GPS Standard Positioning Service for peaceful civil, commercial and scientific use on a continuous, worldwide basis, free of direct user fees.
What is Alamanac Data?

Alamanac data is satellites location at any given time picked up and stored in the gps receiver. If your receiver is not turned on for some time, the data get outdated. When you turn on the receiver, it takes a longer time to acquire satellites and this is referred as cold start

Warm start is when you turn on your receiver within last 4 to 6 hours of alamanac data collected from satellites.

The starting conditions, cold, warm and hot start will determine the time it takes for your receiver to acquire satellite to get a position fix.

Time To First Fix (TTFF) is the time a receiver takes to acquire satellite signals and determine the initial position. The GPS receiver is able to determine a position with at least 3 satellite signals acquired.
What is Ephemeris Data?

Ephemeris data is the corrected positional data transmitted to the GPS Receiver from the satellite. Any satellite can move slightly off the intended orbit and they are tracked by the ground monitor station which in turn send the orbital data to the master control station which then sends the correct data up to the satellites. The data validity is about 4 to 6 hours.
How accurate are GPS receivers, and what affects the accuracy ?

The atmosphere, the ionosphere and the position of your receiver could all affect the GPS accuracy. Also buildings or heavy foliage that obstruct the GPS view (line of sight) of the sky may decrease the position accuracy. GPS provides two levels of service -- a Standard Positioning Service (SPS) for general public use and an encoded Precise Positioning Service (PPS) primarily intended for use by the Department of Defense. SPS signal accuracy is intentionally degraded to protect U.S. national security interests. This process, called Selective Availability (SA), controls the availability of the system's full capabilities. The SPS accuracy specifications, given below, include the effects of SA.

SPS provides accuracy's of (for position, the accuracy with respect to geographic, or geodetic coordinates of the Earth) within: 100 meters (2 drms) horizontal 156 meters (2 Sigma) vertical 300 meters (99.99% prob.) horizontal 340 nanoseconds time (95% prob.) SPS Coverage is continuous and worldwide, with a position dilution of precision (PDOP) of 6 or less.

However, Selective Availability (SA) was switched off on May 2nd 2000.
What is NAVSTAR?

NAVSTAR is an acronym for Navigation Satellite Timing and Ranging.
What is an Atomic Clock ?

This is a very precise clock with accuracy to within 1 second in every million years and is carried by each of the GPS satellites.
What is NMEA or NMEA 0183 ?

NMEA stands for National Marine Electronics Association. It is a US standards committee that defines data message structure, contents and protocols to allow the GPS receiver to communicate with other pieces of electronic equipment. NMEA 0183 is a standard data communication protocol used by GPS receivers.
What is WAAS? Why is a GPS receiver that utilizes WAAS better than the others?

WAAS stands for Wide Area Augmentation System. Systems such as WAAS are known as satellite-based augmentation systems (SBAS). The FAA states that WAAS is based on a network of approximately 25 ground reference stations that covers a very large service area. Each of these precisely surveyed reference stations receive GPS signals and determine if any errors exist. Each wide area ground reference station in the network relays the data to the wide area master station (WMS) where correction information is computed. The WMS calculates correction algorithms and assesses the integrity of the system. A correction message is prepared and uplinked to a geosynchronous satellite via a ground uplink system (GUS). The message is then broadcast from the satellite on the same frequency as GPS (L1, 1575.42MHz) to GPS receivers, which are within the broadcast coverage area of the WAAS.

In a simpler term, WAAS-capable GPS receivers give you better position accuracy by correcting signal errors caused by ionospheric disturbances, satellite orbit errors and other spatial or technical data degradation factors. These GPS receivers will use some of their channels to track WAAS satellites and use WAAS satellite in their position solution. Here is a data accuracy chart published by Garmin:

100m: Accuracy of original GPS System, subjected to accuracy degradation under the SA program.
15m: Typical GPS position accuracy without SA.
3-5m: Typical differential GPS (DGPS) position accuracy.
<3m: Typical WAAS position accuracy.

At the present time, there are two geo-stationary satellites serving the WAAS area, which is only in North American. One covers the Pacific Ocean Region (POR), the other covers the Atlantic Ocean Region-West (AOR-W). (If you wish to see a map of WAAS coverage.

Europe and Asia will eventually be served by EGNOS and MSAS. Hopefully soon, everyone on earth will have access to precise position data using SBAS (Satellite Based Augmentation System).