The system by which this will be achieved is called IPETEE, and it works by replacing the basic operating system network stack and doing all encryption and decryption itself. More details can be found in the IPETEE technical proposal.

Ars Technica pointed out numerous holes in the scheme, noting that most torrent apps already have encryption options. IPETEE applies to more than just torrents, though, so the larger problem is that encrypted packet still need source and destination IP addresses, meaning that one of the most crucial things you’d want to keep private (your destination site) is still accessible.