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A ground fault circuit interrupter (GFCI), or Residual Current Device (RCD) is a type of circuit breaker which shuts off electric power when it senses an imbalance between the outgoing and incoming current. The main purpose is to protect people from an electric shock caused when some of the current travels through a person's body due to an electrical fault such as a short circuit, insulation failure, or equipment malfunction. Standard circuit breakers shut off power when the current is too high, like 10, 15, or 20 amps, but a mere 0.030 amps through a body can cause paralysis of skeletal muscles and stop the human heart. The GFCI / RCD breaks the circuit when it detects an imbalance of only 0.005 amps (0.030 amps in Australia and some European and Asian countries).
A circuit breaker protects the house wires and receptacles from overheating and possible fire. A GFCI / RCD protects people and is often found in bathrooms or kitchens where electrical devices are used and people's bare flesh may be in contact with the floor or metal fixtures which provide an alternate path for current to travel in the case of an electrical fault.
A GFCI / RCD can also prevent fires from short circuits and other electrical faults that don't involve humans such as a low current short where the current never reaches the trigger point for a circuit breaker, e.g. a live wire falls in a tub of water or moist soil and only 1 or 2 amps of current flow.
How it works
Electrical sockets supply a flow of current which comes out of one pin of a socket, called "Live", runs through an electrical device, and returns through the other pin "Neutral." In many countries, such as USA, India and others, the "Neutral" is also connected to the earth (via a rod driven into the soil). If a person touches a bare "live" wire, current can travel through the body to any part (like another hand or the bare feet) connected directly or indirectly to the earth, such as through metal such as plumbing pipes or through moist tiles or a bathtub full of water where the water acts as a conductor. Pure water is a poor conductor but in the kitchen or bathroom it is usually salty or soapy which increases the conductivity; but no matter, since it takes so little current to kill a person, even a poor conductor can result in a lethal shock.
The GFCI device uses a differential transformer to compare the current "going out" on the hot leg with the current "coming back in" on the neutral. If there is a large enough difference between the two, typically 5 milliamps (30 in some places), then that is considered an imbalance, and an internal solenoid mechanically trips the built-in circuit breaker cutting off connection to both the Live and Neutral pins.
The assumption is that some of the outgoing current is going through a person or object and is taking an alternate route back to Neutral.
Death caused by electricity (Electrocution) can happen when as little as 30 milliamps of current flows through the heart for just a fraction of a second. The GFCI device protects at a level which is much lower than what is needed to cause harm.
If a GFCI device trips and the fault is later fixed, then the user resets the GFCI device by pushing the reset button. If the problem is not fixed, the GFCI keeps the circuit shut off and will not reset. There is also a test button, which will cause the GFCI to trip if it is working properly. GFCI outlets should be tested at least once a month.
GFCI devices employ a timing standard to prevent false "nuisance" tripping and may also protect against improper Neutral-Earth connections.
Multiple standard (non-GFCI) sockets can be protected by being wired in a string to the output of a single GFCI wall outlet although the wiring has to be carefully done considering the maximum load and to prevent false "nuisance" tripping.
GFCIs are available in two types: the circuit breaker that installs in an electrical panel, and the receptacle type that installs into an electrical box. GFCIs that attach to appliance cords, or are built in to extension cords, are also available. Newer hair dryers may have them also, appearing as a small box at the end of the power cord or on the handle itself.
Since a GFCI only monitors current on the hot leg compared to the neutral, the GFCI can be used to upgrade older two-prong (non-grounded) outlets to three-prong (grounded/earthed) outlets without installing any new wire. A circuit with a GFCI device without a ground is far safer than a two-prong outlet without a ground. A GFCI installed this way must be labeled "No Equipment Ground."
When a GFCI is installed in the electrical box without connecting the ground screw (as there is no ground wire), a label that says "No Equipment Ground" is placed on the GFCI outlet and all downstream outlets. Several of these labels are usually included with the GFCI. In some parts of the world, "ground" is called "earth".
GFCIs are a suitable replacement for two prong outlets without a grounded wire. The National Electric Code requires GFCI protection in dwelling on kitchen counter tops, bathrooms, unfinished basements not intended as habitable rooms, crawl spaces, garages, sinks where the receptacles are installed within 6 feet from the top edge of the bowl of the sink, boathouses, bathtubs or shower stalls where receptacles are installed within 6 feet from the edge of the bathtub or shower, laundry areas, outdoors except for receptacles that are not readily accessible and are supplied by a branch circuit dedicated to electric snow-melting, deicing, or pipeline and vessel heating equipment shall be installed in accordance with NEC 426.28 or 427.22 as applicable. (NEC 210.8 (A)) 
GFCI protection is required on construction sites.