How many people are included in three-hop network analysis?

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According to the ACLU, if you have 40 contacts in your network, and the NSA collects data from your network to three degrees of separation, then it could collect data on up to 2.5 million people.

How does the ACLU get this number?

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If you know $40$ people, then the NSA can collect data from those $40$. Now, each of them will know $40$ people. So, that's $40\cdot 40=1600$ new people that the NSA can track. Continuing a degree higher, each of those $1600$ people know $40$ people. This leads to $1600\cdot 40=64000$ new people that can be tracked. Each of these $64000$ knows $40$ people. So, the number of people a third degree of separation from you is $64000\cdot 40=2,560,000$ people. Furthermore, the number of people within three degrees of you is $$ 40+1600+64000+2560000=2,625,640. $$

Since I've answered this question, perhaps the NSA is tracking $$ 2,625,640+1 $$ people.