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The Cloaking Device is installed in a highslot of your vessel, and when it is activated the ship becomes invisible. 1 second is required to hide, and the same period of time to emerge from invisibility, but after that during about 20 seconds it is impossible to do anything (time of sensors calibration). The exact time for calibration is different for different types of cloaking devices, and depends on your Cloaking Skill. The only action that can be made immediately after becoming non-invisible is to lock a target.
While you are hidden, you cannot be seen, nor be targeted. You can only be accidentally affected by smartbomb bursts, which does not hurt your ship, but will make it visible.
A hidden ship cannot capture the purpose, can not go into warp (unless using a Covert Ops Cloak), moves slowly (with Covert Ops Cloak moves normally), cannot use Drones, cannot open containers, collect loot, use smartbombs, perform probe scans, etc. In fact, when using the a cloaking device you cannot activate almost any other module.
It is not possible to become invisible, if your ship is 2km and less away from any object. You also can not hide if you are locked, even by an NPC. You can be locked even at the distance of 500km, - and you will not be able to activate cloaking. The cloaking device does not use the Capacitor.
Also, the resolution of scanners is decreased, if the ship has cloaking devices installed. This means that you will lock a target by 40-50% slower, which is considerable for large ships.
Despite all the drawbacks for the ship, the ability of invisibility is widely used. It is indispensable for reconnoitring the location of enemy ships, breaking through a blockade, creation of bookmarks on the territory of the enemy, detect enemy safespots, lead the gang to an optimal distance for attack, scan the system using scan probes, and much more.
It is best to use the Covert Ops Cloak, if you have the appropriate type of ship.