Edit - 11/11/2018 - This article is only relevant for BitcoinPlus 2.6.0 Client. The latest release of 2.7.0 does NOT have TOR built in. You could if you wished still use TOR with XBC client 2.7.0 and that will be covered in a seperate tutorial in the future.
To understand the TOR network we are going to go back to basics. Let's imagine for a second that computers and the internet don't exist and everyone still communicates using written letters.
In this imaginary world, people still like to order things without leaving the house. How could you buy for instance a brand new top of the range Car Shaped Red Pen when you can't be bothered to leave the house.
If you know the address of where you want to buy the Red Pen you could send them a letter. In that letter you would say that you would very much like to purchase that top of the range Car Shaped Red Pen. You would also include your personal details such as your name and address so that the Pen shop knows where to send your magnificent new Car Shaped Red Pen.
The problem with this scenario is that everyone on the delivery route can see what you have written. They can make copies of everything or simply keep lists of who requestetd what.
Protect the content of the letter in an Envelope !
One basic protection for our letter would be to use a sealed envelope. A good seal would be impossible to open without breaking it. With a good seal in place, all the post office could do is maintain a list of what gets delivered where, without knowing the contents of the envelopes.
The information that is available is the size and weight of the envelope and the identities of the sender and recipient. This is called metadata.
Metadata reveals a lot. For example, you can tell if you’ve received a speeding ticket just from looking at the envelope. And so can the postman.
This is very close to how the internet works today. Cryptographic seals (as used in the TOR Network) go one step further by being impossible to open.
Tor circuits rely on a system of nodes
To send requests anonymously in the TOR network, you start by establishing a TOR circuit. To do this, you send your “sealed letter” to a random Tor node. This could be a residential or commercial address. It could be your neighbour’s house, or it could be a big building in a faraway country. This is your entry node, and all your sealed mail will be sent to this address. All the mail that you receive will also come from this address.
Your entry node will forward your mail to yet another node, which will again forward it on to another node—the exit node. Only the exit node knows the address of your intended recipient.
The following is an explanation of how the system of nodes works:
- The entry node can see who you are, but not what you request or who you request it from.
- The middle node cannot see anything. It is important because it separates the exit and entry nodes from each other.
- The exit node can only see what you request, but not who you are.
All data passed through the TOR network is encrypted in various layers.
XBC Wallet has the TOR network Integrated
By default when you start up your XBC Wallet your Wallet automtically uses TOR.
You can check this for yourself. Open your XBC wallet and goto Help --> Debug Window.
Then click Console.
Your IP address ends in .onion. This shows your wallet is connected to the TOR Network.
By using TOR your identity is now hidden and all the data you are sending is encrypted in numerous layers (Hence the name Onion).
When sending transactions in the XBC network your IP address is hidden. However there is an important point to remember when using Cryptocurrency. This is something called a blockchain. A blockchain is a public ledger of all transactions on the network. All transactions on the XBC network will come from an XBC Address and go to an XBC Address. This is then stamped on the XBC Blockchain forever. By using a block explorer everyone can look up XBC addresses and XBC Transactions. If you wished to be completely anonymous you would need to create a NEW XBC address everytime you wished to send and receive XBC.
So to recap -
TOR Network makes your IP address Anonymous and encrypts your data. It does NOT mean your XBC Transaction is invisible. It just makes it impossible to link your XBC Transaction to a specific IP address and more specifically, YOU !