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Onion routing is a method by which network packets can be transmitted anonymously over the Internet or a network.
It was first conceived by the U.S. Navy to hide the origin of Internet Protocol (IP) packets as they traveled over the Internet. However, it protects and hides both the sender and receiver of the data packet.
In onion routing, each layer serves as encapsulation, revealing information when the layer is extracted.
In practical implementation, onion routing consists of a series of onion routers connected through a proxy. The application intending to send a network packet transmits it to the onion routing proxy, which creates an anonymous connection using different onion routers en route to the destination node.
The first onion router encrypts the message and sends it to the next router in the configured path. The receiving onion router decrypts the message using its private key, reveals the next destination onion router, encrypts it again and sends it to the next onion router.