So now you know what TOR can be used for, and how you can use it. But how, exactly, does TOR work?
Well, it's complicated.
At the beginning, TOR was not meant for widespread consumer use. Instead, it was created as an onion routing project for the U.S Naval Research Laboratory. Designed for he U.S Navy, it was meant for keeping government communication anonymous. Did it stay that way? Definitely not.
Today, TOR is used by many different people. Anyone looking for anonymization of their internet identity. This includes the Military, Journalists, Law Enforcement, Activists, Hackers, Crackers, Script Kiddies, Criminals, and the everyday person. So, pretty much everyone. The great benefit of TOR is that it allows people to share information over the internet without fear of this information being compromised.
One may think that the variety and amount of people using TOR, however, compromises your security. On the contrary, the more people using TOR, the safer it is. The joy and genius of TOR is it's decentralization. What this protects against is "traffic analysis". On the traditional net, your data is encrypted as it passes through servers. Despite this encryption, however, the owner of the server, or someone/organization/3rd party affiliated with the server, can guess at what the data is, giving them insight. This "insight" can include your location, a general idea of what the data is, where the data is coming from and where it is going to. This can allow E-Commerce sites to classify you into categories, allowing them, for example, to raise their prices according to your location, or display ads based on your interests (Looking at you, Google Ads).
TOR hides you among it's users through a "node" system. A node is a "relay" that transmits your data through many different entities and different places on the internet. This ensures that no single point can connect you with a destination or the place a user came from. it's basically a long, twisting, route, continually erasing footprints, throwing off anyone that may be following. Instead of a direct route, data picks random paths within the TOR network to conceal you.
The users client creates the route. It picks a bunch of different relays setup by users through the TOR network. No one relay knows the complete path, and each time data "hops" from one place to another, it encrypts itself, creating it's own set of encryption keys. This ensures that the data cannot be traced. This entire path is referred to as a "circuit". The onion analogy also comes from this. All these nodes create layers upon layers of security, and so, it's all just an onion, making traffic analysis pretty much impossible, so that we can all enjoy anonymous awesomeness.
How TOR Works Pictures (Taken from the TOR Project):
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