Whenever you read about link cloaking you almost always hear it in a negative sense. There is a negative connotation to the conversation as if it should be a given that it is immoral and unethical. And some people might even add that it should be illegal. But that’s not necessarily the case.
Link cloaking is nothing more than obscuring the destination URL of your links so that readers don’t see where the final destination is. Why would a webmaster want to do that?
The best reason I can think of to cloak your links is to protect your affiliate IDs. Many affiliate marketers use link cloaking to protect their affiliate IDs and to increase their click throughs. It’s a viable tactic.
Remember, if you are an affiliate marketer and you point your readers to another website using your affiliate ID links then you’ll run the chance that an unscrupulous scraper will steal your affiliate ID, or replace yours with his and steal your commissions. Link cloaking is a way to protect yourself from that happening.
But you’ll also find that a lot of people these days won’t click a link if they think it is an affiliate link. Some people don’t believe you deserve your commissions for closing a sale. Other people just don’t want to be taken away to a site they’re not sure they trust. That is actually a viable concern and link cloaking adds an element of trust for those people as the destination URL on your links appear to be on your own site. It doesn’t look like clicking that link will take your visitor to a site they might not trust. Such a move usually increases CTR.
But I would not use link cloaking for building inbound links. When you cloak a link the search engines are looking for destination URLs. In order for the link to cloak effectively, it will have to redirect from the page it appears to be pointing at to the actual page you want your visitors to land on. Search engines tend to discount those links from their link analysis algorithm so if you build your inbound links that way then you’ll be defeating the purpose. Besides, those links won’t actually point to your web page so, again, you’ll be defeating the purpose. Link cloaking, however, does have its legitimate purposes.