This is transparent as long as:
* server and client run on the same host
* server is recent enough
* client also uses updated library
* client connects specifically to localhost (especially not 127.0.0.1). You can also force it with "localhost:/tmp/tmp/indiserver". This will refuse to connect if using a log library

You can check in the indiserver log: when a client connect with the new scheme it display a message about local domain:

... new arrival from local ...

Versus plain old tcp connection which display :

...new arrival from <ip-address>:port

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