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TOR is a free software implementation of second-generation onion routing – a system which enables its users to communicate anonymously on the Internet.

To install TOR in Ubuntu / Debian, follow the steps below:

1. Adding the Tor repository. Open a terminal and paste this:
sudo sh -c 'echo deb "http://deb.torproject.org/torproject.org [YOUR_DISTRO_VERSION] main" >> /etc/apt/sources.list'
Replacing [YOUR_DISTRO_VERSION] with your version of either Ubuntu or Debian (Lucid, Maverick, Natty or Etch, Lenny, Sid, Squeeze, etc.)

2. Adding the GPG key and installing TOR and Privoxy in Ubuntu / Debian. Open a terminal and paste this:
gpg --keyserver keys.gnupg.net --recv 886DDD89
gpg --export A3C4F0F979CAA22CDBA8F512EE8CBC9E886DDD89 | sudo apt-key add -
apt-get update && sudo apt-get install tor tor-geoipdb privoxy

Privoxy is a filtering web proxy that integrates well with Tor.

3. Editing the privoxy config file in Ubuntu / Debian
sudo gedit /etc/privoxy/config/
and at the end of the file, add this:
forward-socks4a / localhost:9050 .

Notice the dot at the end and the space before it!

4. Starting Tor
sudo /etc/init.d/tor start
sudo /etc/init.d/privoxy start

5. Installing Vidalia (Optional)

Vidalia is a controlling Graphical User Interface for Tor. Tor must be installed for Vidalia to work. Once you have installed Tor and Vidalia you can configure client and relay settings through Vidalia. To install, type the following command in a terminal:
sudo apt-get install vidalia polipo

6. Installing Torbutton for Firefox

Install Torbutton from HERE and restart Firefox.

Now you can test to see if Tor is working: try using your browser with Tor and make sure that your IP address is being anonymized. Click on the Tor detector and see whether it thinks you're using Tor or not.

To Torify other applications that support HTTP proxies, just point them at Privoxy (that is, localhost port 8118). To use SOCKS directly (for instant messaging, Jabber, IRC, etc), you can point your application directly at Tor (localhost port 9050), but see this FAQ entry for why this may be dangerous. For applications that support neither SOCKS nor HTTP, take a look at tsocks or socat.

7. Anonymizing Applications

To anonimize an application, simply edit it's settings (or preferences) and under Proxy, for Socks5, enter:
Ip: localhost
port: 9050

Alternatively, you can set this globally for your computer (though it will not work for some apps such as Firefox, for which you need TorButton). For this, go to System > Preferences > Network Proxy, select "Manual proxy configuration" and under Socks Host, enter the IP and port as explained above, then click "Apply System-Wide" (this may not be available in Ubuntu 11.10).

Also see: [How-To] Listen to Pandora And Spotify Outside US / UK In Linux, Using TOR (With Country Specific Exit Nodes)