While both of these technologies will keep you anonymous by hiding your IP address, they work in slightly different ways. A torrent proxy only filters your Bittorrent traffic, so it is not a fully anonymous connection tool. An anonymous VPN will protect your entire Internet connection, disguising your use of everything from utorrent to email to basic web browsing by establishing a virtual network via our servers to reroute all your traffic.
Think of a torrent proxy server as a filter. You have control over torrent proxy settings, which only affect your torrent client (utorrent, bittorrent, vuze, ect) or any other program that supports socks5 proxies like firefox. A proxy only provides IP masking to one application at a time. When you download and seed torrents or browse the web, all your traffic is routed through the anonymous proxy server and directly to you. This means that peers in the torrent swarm will not see your IP address, but rather the IP address of TorGuard's proxy server. When using a torrent proxy, you get all the benefits of torrenting and the proxy server, including security, speed, geographic location, and an anonymous IP.
Unlike a torrent proxy, which only secures your torrent client or web browser,VPN (Virtual Private Network) encrypted tunneling secures 100% of all your internet access, replacing your local ISP routing for all applications. With a fully anonymous VPN server, you will enjoy enhanced security, and speed regardless of geographic location. This protects not only your torrent downloads but also all other online activity or programs such as your web browser, email, and any other third party applications that connect to the web. You'll also get faster connections and military grade encryption when using a VPN like TorGuard. And, your VPN can easily be connected or disconnected with just one mouse click.
An anonymous proxy for protects your torrent traffic or web browsing only; whereas a VPN will work with all internet based services and applications routing everything through a secure and encrypted connection to disguise your personal information and keep you secure.