Tor (The Onion Router)

How It Works

Tor encrypts your traffic and routes it through a series of three volunteer-operated relays (guard, middle, and exit node), each of which only knows the identity of the immediately adjacent nodes. The guard node knows your IP but not your destination. The exit node knows your destination but not your IP. No single relay has both pieces of information. This onion-layered encryption is what gives Tor its name.

For Bitcoin specifically, Tor serves multiple purposes. When running a full node over Tor, your node's IP address is hidden from other nodes on the network, preventing observers from correlating your node with your identity or geographic location. When using wallet software that connects to your own node via Tor, your address queries remain private even if an attacker is monitoring network traffic. Bitcoin Core has built-in Tor support and can operate as a Tor hidden service.

Tor is not a complete privacy solution. It protects network-level metadata but does not encrypt the content of unencrypted connections. It does not protect against browser fingerprinting if you use it for web browsing alongside Bitcoin operations. It also does not help if you log into a KYC exchange through Tor — the exchange still knows who you are. For Bitcoin operations, the ideal setup is your own full node running as a Tor hidden service, with your wallet software connecting exclusively through that node. This eliminates both IP-level tracking and reliance on third-party servers for wallet data.

Key Points

• Routes traffic through multiple encrypted relays so no single point sees both your identity and destination
• Bitcoin Core has built-in Tor support for running a privacy-preserving full node
• Prevents network observers from linking your IP address to your Bitcoin transactions
• Does not protect against identity exposure through KYC exchanges or account logins
• Best combined with running your own full node to avoid leaking address queries to third parties