From Ann Harrison’s Onion Routing Averts Prying Eyes (Wired News: 5 August 2004):
Computer programmers are modifying a communications system, originally developed by the U.S. Naval Research Lab, to help Internet users surf the Web anonymously and shield their online activities from corporate or government eyes.
The system is based on a concept called onion routing. It works like this: Messages, or packets of information, are sent through a distributed network of randomly selected servers, or nodes, each of which knows only its predecessor and successor. Messages flowing through this network are unwrapped by a symmetric encryption key at each server that peels off one layer and reveals instructions for the next downstream node. …
The Navy is financing the development of a second-generation onion-routing system called Tor, which addresses many of the flaws in the original design and makes it easier to use. The Tor client behaves like a SOCKS proxy (a common protocol for developing secure communication services), allowing applications like Mozilla, SSH and FTP clients to talk directly to Tor and route data streams through a network of onion routers, without long delays.