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What is the difference between a tethered jailbreak and an untethered jailbreak?:

A tethered jailbreak means you cannot boot (turn on the iPod/iPhone) without connecting it to a computer. Untethered means the device jailbreak is independent of computer, and it can boot all by its lonesome self.

Is jailbreaking illegal?

NO, jailbreaking is 100% LEGAL. Although some sources and apps are reportedly illegal, they are not recommended and are not supported by the jailbreakcentral community.