- A system where data packets are encrypted and passed through multiple relays, obscuring content and destination.
- Has two aspects: the TOR web browser for accessing the "dark web" and the encrypted network layer used for varied purposes, including Bitcoin node communication.
- Automatically supported by Bitcoin for node communication.
- Offers a globally accessible service but is slow due to multiple redirects and is vulnerable to DoS/DDoS attacks. Exit nodes might be monitored by third parties.
- Creates an encrypted connection between your device and a remote server, masking your actual traffic origin.
- Some VPN providers might be regulated and could release user logs to third parties. They could also monitor your traffic.
- Direct home router VPNs, like Tailscale or OpenVPN, are safer as they do not route traffic through third-party servers.
Both have their advantages and disadvantages, so it is subjective and largely depends on your use case. For some (incomplete) advice, let's review their major characteristics and pros and cons:
TOR: The Onion Router
The abbreviation TOR stands for the onion router, which relates to the fact that network packets sent via TOR are wrapped in encryption and sent to multiple relays, before they reach their destination. That makes it impossible for the relays to see the content or destination.
TOR is actually two separate things, both of which are built on the same foundation. One is the TOR web browser, which uses a unique naming scheme to identify pages or services on what’s called the “dark web”. Because this browser is of little relevance to Bitcoin, we will not go into detail here.
The other thing named TOR is an encrypted network layer, which also uses that same naming scheme to address nodes and services but can be used more universally than just for interactive web browsing. For instance, many Bitcoin node operators decide to base their node communication on TOR, and Bitcoin itself was programmed to enable that automatically. A TOR node creates a very long, unique identifier for every service it offers and communicates that to the TOR directory. Subsequently, this service (e.g., your Bitcoin node) can be reached via other TOR nodes from anywhere in the world, at least as long as the providers do not block TOR traffic.
One downside is that TOR is slow by design, because network packets are redirected several times in order to make the traffic hard to track. It is also subject to frequent DoS and DDoS attacks, which can seriously impact performance. It is also not as safe as one might think, because the number of exit nodes is small, and some of those may be run by spy services.
VPN: Virtual Private Network
VPNs establish a cryptographically encrypted network layer between two endpoints. In many cases, this is between your own machine (or mobile phone) and a remote VPN server, often in another country. This makes it appear as if the traffic that actually comes from your machine, originates somewhere else. While this sounds very private, many of the VPN providers have been captured by local regulators and now have to release logs to the appropriate parties upon request. They might also peek into the data traffic and spy on you, because their own servers are an endpoint of the communication channel.
There are, however, VPNs that connect your mobile device back to your home router. Those are more secure to use because at least the traffic is not directly routed via some third party’s servers. Software products like Tailscale or OpenVPN are examples of such VPNs (although they are not limited to that functionality).
Ultimately, the more you try to hide your data, the more valuable third parties and bad actors perceive it to be. So, it is essentially a never-ending game of cat and mouse.