With URL shortener service like bit.ly, you can create a short fancy link from any gigantic link. There are many popular shorteners on the market, for example bit.ly, cli.co, small.cat, and others.
A person has to actually click your short link, otherwise it doesn't work.
If the victim uses VPN, the service will technically work, but will show wrong location.
There are multiple factors which come into play regarding accuracy of the result: Internet provider, quality of Internet in the area, specifics of mobile/home/office network used, pure luck, etc.
Most of the times the result is accurate on the scale of cities. So, if the city name is provided, you can be quite confident that your chat buddy is physically in that city or really close to its borders.
Everything is free forever!
Not possible! The victim will receive an innocent short link to some simple content chosen by you. It is not suspicious in any way. These short links are used quite often. You can easily say that you copied that link to cat pic "from somewhere on the Internet". For example, in the description of this youtube video there is a bit.ly link to their shop.
In other words, there is no way to catch you on something.
You can organize a genuine joke or surprise for your friends by "guessing" their current location out of nothing.
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