As the name suggests, TOR is an implementation of an onion routing system, and works by passing Internet traffic through a number of ‘layers’ before it reaches its destination. In practice, TOR calls the layers of its network relays, but the analogy is sound. Relays operate as stepping stones for traffic, with anonymity ensured by having your traffic use several steps to get to its destination.
As a peer to peer system, users connecting to the TOR network are encouraged to offer their own connection as a relay, but that is not a requirement to use TOR—it’s perfectly acceptable to simply use the network. Alternatively, you could run a bridge relay, which will forward traffic to other relays, but won’t allow outbound connections. If you do wish to allow use of your outbound traffic, you can limit the types of connection allowed such that your relay will forward to a destination (for example, only HTTPS).
Critical to the intended purpose of TOR, no single node knows both the source and destination address of any traffic it forwards; relays know only the address of the previous relay, ensuring users’ anonymity. Clients receive a hostof relays from a decentralised network, such that, to force clients to use its own relays, an attacker would have to subvert a majority of relay servers for a sufficiently long time that it is almost certain such an attack would be noticed. A determined third party could still see your traffic, if they were able to monitor both your entry and exit (either the relay or destination), by comparing the data packets at each end. And of course if the exit traffic is unencrypted it’s open to being read by anyone interested. The resources required to compromise TOR, therefore, preclude just about anyone outside of a government agency from performing such an attack.
The aforementioned exceptions aside, it is safe to assume that, when using TOR to access websites, IRC servers, or the like, the destination systems cannot identify you, as your IP address is not revealed to them. As far as the end point is concerned, it is communicating with the exit relay. Your ISP—the first connection point you make to the Internet—cannot tell the end destination of your traffic, as you instead communicate via a TOR relay node, and that communication is encrypted.
All of which is a long road to saying that you should have no fears that your activity carried out over TOR—be that chatting on IRC, or just browsing a few websites—is being viewed by prying eyes. The exceptions to that rule will only become relevant when you have much bigger problems than whether your ISP knows you like to read 4chan. It might seem paranoid to want to hide your Internet activity, especially if it is entirely innocent. But even those times that we don’t need it ourselves, we feel better knowing that the likes of Anonymous, the staff and volunteers of WikiLeaks, and many other Internet users who, for various reasons, do have good reason to hide what they’re doing online have a way to do so—we think you’ll agree.