cryptome.org -- BINGO, we have a winner! The original *QUESTION* posed that led to the invention of Onion Routing was, "Can we build a system that allows for bi-directional communications over the Internet where the source and destination cannot be determined by a mid-point?" The *PURPOSE* was for DoD / Intelligence usage (open source intelligence gathering, covering of forward deployed assets, whatever). Not helping dissidents in repressive countries. Not assisting criminals in covering their electronic tracks. Not helping bit-torrent users avoid MPAA/RIAA prosecution. Not giving a 10 year old a way to bypass an anti-porn filter. Of course, we knew those would be other unavoidable uses for the technology, but that was immaterial to the problem at hand we were trying to solve (and if those uses were going to give us more cover traffic to better hide what we wanted to use the network for, all the better...I once told a flag officer that much to his chagrin). I should know, I was the recipient of that question from David, and Paul was brought into the mix a few days later after I had sketched out a basic (flawed) design for the original Onion Routing.The short answer to your question of "Why would the government do this?" is because it is in the best interests of some parts of the government to have this capability... Now enough of the conspiracy theories...
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