Privacy Watch: Tor
There are drawbacks, of course. Although the onion routing algorithms are good, onion routing certainly has the potential for higher latency that traditional RIP and OSPF routing. Tor is also not an end-to-end solution. If the ultimate destination of a packet is a machine that doesn't support Tor, the packet is in the open from the time it leaves the Tor exit point and using traditional end-to-end encrytption on top of Tor is advisable.
The gains are significant, though, and as the protocol becomes more widely adopted the advantages will become even more pronounced. Aside from privacy protection, Tor's "next hop" TLS encryption virtually eliminates the potential for traditional "man in the middle" attacks within the network because such attacks rely on knowing the origin and destination of packets, and capturing a usable data stream. Tor, particularly if combined with end-to-end encryption, also makes encrypted data less susceptible to brute force attacks; it is much more difficult to capture a complete data stream, and data is encrypted multiple times with short-lived session keys.
Even though Tor is still in beta, it's well worth a download (The Windows version already won a PCWorld "Best Products of 2005, Security" Award). Take a look, and if you have a public IP, think about setting up a server.
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