If Torrenting is "illegal", then how do websites that provide torrents exist?
Torrenting itself is not illegal, just as photocopying is not illegal.
It is the dissemination of copyrighted material that is illegal. The tool itself is not necessarily illegal.
Like other answers have pointed out, torrenting and piracy are not synonymous. Torrenting and peer-to-peer file sharing are an innovative, useful, and efficient way to share files and an alternative to storing files on one central server. While this is often used to downloaded pirated material, some people do share legitimate files through torrents.
That being said, there are some websites that are set up more or less for the purpose of illegal sharing - like Pirate Bay. They often exist because they exist outside the legal reach of the United States. Not all countries have such strict intellectual copyright laws, and therefore it is not illegal to host those sites in the countries where they are based.
I have wondered that myself with lime-wire and things existing. The best answer I got when I was asking this very question was something like this.
Oddly enough, while the act or possession it's self may be illegal, it is not always illegal to sell the product or service. For example it is perfectly legal for places to sell custom car parts, including red and blue neon lights. However, that does not mean it will be "legal" for you to use them.
It's legal for places to sell house hold cleaners and other products, but it can be considered illegal to purchase or be in possession of a combination of them.
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