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How does a DNS service like AdFree prevent non-subscribers from using their servers?

You have to log in and they associate your IP with your paying account. So they only accept requests from known IPs.

Its a DNS server, it doesn't change your IP. Only changes the IP for the hostname that you lookup.

I wasn't clear. The service knows your IP and then can resolve DNS queries for you.

If your IP isn't in their system, they can ignore it. That prevents non-paying users from using the service.