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Tor (previously an acronym for The Onion Router)[4] is free software for enabling online anonymity. Tor directs Internet traffic through a free, worldwide, volunteer network consisting of more than four thousand relays[5] to conceal a user's location or usage from anyone conducting network surveillance or traffic analysis. Using Tor makes it more difficult to trace Internet activity, including "visits to Web sites, online posts, instant messages, and other communication forms", back to the user[6] and is intended to protect the personal privacy of users, as well as their freedom and ability to conduct confidential business by keeping their internet activities from being monitored. 

The term "onion routing" refers to layers of encryption, nested like the layers of an onion, used to anonymize communication. . The final relay decrypts the innermost layer of encryption and sends the original data to its destination without revealing, or even knowing, the source IP address. Since the routing of the communication is partly concealed at every hop in the Tor circuit, this method eliminates any single point at which the communication can be de-anonymized through network surveillance that relies upon knowing its source and destination.[8]

Alice's Tor client picks a random path to destination server

Tor aims to conceal its users' identities and their network activity from surveillance and traffic analysis by separating identification and routing. It is an implementation of onion routing, which encrypts and then randomly bounces communications through a network of relays run by volunteers around the globe. These onion routers employ encryption in a multi-layered manner (hence the onion metaphor) to ensure perfect forward secrecy between relays, thereby providing users with anonymity in network location. That anonymity extends to the hosting of censorship-resistant content via Tor's anonymous hidden service feature.[11] Furthermore, by keeping some of the entry relays (bridge relays) secret, users can evade Internet censorship that relies upon blocking public Tor relays.[22]

Because the internet address of the sender and the recipient are not both in cleartext at any hop along the way, anyone eavesdropping at any point along the communication channel cannot directly identify both ends. Furthermore, to the recipient it appears that the last Tor node (the exit node) is the originator of the communication rather than the sender.

HOW TO HIDE YOUR IP ADDRESS

Users of a Tor network run an onion proxy on their machine. The Tor software periodically negotiates a virtual circuit through the Tor network, using multi-layer encryption, ensuring perfect forward secrecy. At the same time, the onion proxy software presents a SOCKS interface to its clients. SOCKS-aware applications may be pointed at Tor, which then multiplexes the traffic through a Tor virtual circuit.

A Tor non-exit relay with a maximum output of 239.69 KB/s

Once inside a Tor network, the traffic is sent from router to router, ultimately reaching an exit node at which point the cleartext packet is available and is forwarded on to its original destination. Viewed from the destination, the traffic appears to originate at the Tor exit node.

Tor's application independence sets it apart from most other anonymity networks: it works at the Transmission Control Protocol (TCP) stream level.

Applications whose traffic is commonly anonymised using Tor include Internet Relay Chat (IRC), instant messaging, and World Wide Web browsing. When browsing the Web, Tor often is coupled with Polipo or Privoxy proxy servers. Privoxy is a filtering proxy server that aims to add privacy at the application layer.

The Polipo proxy server can speak the SOCKS 4 & SOCKS 5 protocols and does HTTP 1.1 pipelining well, so it can enhance Tor's communication latency. TorProject.org therefore recommends that Polipo be used together with the Tor anonymising network.