There are many risks associated with using a proxy service. First let’s understand that all proxy services are not the same. The paid sites are usually better than the free sites in terms of Internet security, and online safety. If you are planning on using a proxy service, the best advice that can be given is really to read the fine print before you sign up.
Not all free services are there to provide a service to hide your IP Address or to allow your computer to surf the Internet with total anonymity. Many times those services are just a front to lure consumers into providing sensitive data. Not all proxy services are run by upstanding individuals/companies.
We know from the data that is presented by security companies that hackers like to frequent public ports, such as those found around a wifi station or a proxy. If you equate a hacker to a shark, than you can understand that sharks will not pool around a spot where food is in short supply. Sharks gather when there is enough resources/food to support all/most of them. When you find that hackers/sharks pool, it is because there is a lot of something there to temp them. This is one of the reasons that the word free is not a true definition.
Proxy services are sometimes used to lure people in to using the “free” services so that hackers or scam artists can collect your personal data. This is something of a red-herring. The free part distracts people from the real danger. Data, even encrypted data can be gathered and decoded, and that is one of the dangers of using a proxy. Another danger is not from the proxy at all. It is from your computer. If you do not delete all of the cookies on your computer, you may not be surfing the Internet anonymously. Cookies have a sneaky way of spying on you and then telling. A cookie is very capable of collecting your IP Address, and when that happens while using a proxy, your real IP Address might be visible. Oops!
Just as a note: The Social Security Administration within the United States openly admits that Identity theft is the fastest growing crime in 2012. These are the people who create and maintain the identification numbers assigned to every American.
There are all kinds of tricks that hackers and malicious people use to steal peoples personal, financial, security information. An example would be if a series of proxy servers were daisy chained together. When this happens your computer only senses the first server, and maybe the second, but not the third or fourth. The purpose of the third and fourth servers is to collect all of the data that arrives from the chain of servers. One may collect data from the Internet, and the other may collect data from subscribers. When this happens it is almost undetectable.
How Do you Surf Anonymously if Proxies are Dangerous?
That answer is fairly simple. You use the services of a VPN like hidemyass.com. The VPN works like a proxy, but they carry a better reputation. They connect you to the Internet with a false IP Address, and most have no interest in recording your data. It is still best to use a paid service over a free service.