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That is a much smaller issues than passwords stored in logs, because the people who have access to running tcpdump usually also have the ability to intercept traffic in other ways (e.g. by updating the application to log all traffic or by inspecting RAM). On the other hands access to logs is usually handed out to a much bigger group of people.

True, but thankfully service meshes like Istio are increasingly used which encrypt the traffic between each service.

Also true.