Why NuCypher will Grow with the Decentralized World

What is NuCypher?

NuCypher is a decentralized key management system (KMS), encryption, and access control service for distributed apps and protocols that aims to provide a security infrastructure for decentralized applications. Having a reliable and efficient KMS is essential to company security because it prevents malicious actors from accessing sensitive files and data. Currently, enterprises use centralized KMS systems as features in products such as Amazon Cloud HSM and Microsoft Cloud HSM, but decentralized apps do not work as well with centralized systems and do not have a decentralized alternative. NuCypher is exciting because it has a chance to become a leader in decentralized KMS and the decentralized security infrastructure by using re-encryption techniques to ensure that data remains safe. Although NuCypher has potential to succeed in decentralized systems, it will have a hard time breaking into current enterprise markets because of the benefits of centralized multi-cloud systems, which means that the success of NuCypher will be solely based on the growth of decentralized apps.

How does NuCypher ensure security?

NuCypher provides a reliable security infrastructure because of its use of proxy re-encryption and split-key encryption. Proxy re-encryption allows any node on a network to send secure data to any other node, whether it is known or unknown. In proxy re-encryption, the proxy re-encrypts data using the sender’s private key and the recipient’s public key without seeing the private key, ensuring that data can be sent securely. Also, NuCypher uses a decentralized network instead of one centralized proxy that has to be online at all times, and uses split-key encryption to achieve this. In split-key encryption, the re-encryption key is split among many nodes in NuCypher, which makes collusion between nodes difficult. NuCypher’s use of these encryption techniques provide safety and security for decentralized apps and protocols, making sure that malicious agents cannot damage the company’s network.

How does NuCypher make money?

In order to earn revenue, NuCypher is developing the NuCypher Token, which acts as a method of payment for re-encryption services. If users choose to stake their tokens (i.e. provide re-encryption services for the network), they receive compensation levels determined by an incentive structure that discourages malicious behavior. Compensation levels rise with the amount of work performed, time online, and tokens staked, which ensures there will be sufficient supply of re-encryption services and encourages good behavior. NuCypher is also trying to mitigate the potential for attacks by developing ways of distributing NuCypher Tokens to prevent one entity from controlling a large part of the network and to increase the supply of staked tokens. NuCypher developed the WorkLock contract, which discourages speculation and encourages staking by forcing users to escrow ETH into a contract. The contract sends user the escrowed ETH if they stake the token, and burns the ETH if not. This process encourages users to stake their tokens and provide re-encryption services for the network.

Why might NuCypher fail?

The primary barrier to NuCypher’s success is that enterprises in the status quo may not use NuCypher because of the advantage of multi-cloud systems, which 82% of enterprises use. Currently, enterprises use KMS’s as features in different cloud providers, and they choose to use many different cloud providers to hedge against the threat of service provider failure and security issues. To connect multi cloud systems, products such as Hashicorp Vault create low-trust networks for multiple clouds as a centralized system. Assuming that NuCypher would be used alongside multiple clouds, products such as Vault will incorporate the network as a part of a centralized architecture, which will eliminate some benefits of decentralized architecture. Also, benefits such as N-to-N communication will be lost unless other cloud providers choose to join partnerships. Problems with the management of all the different KMS may discourage enterprises from using NuCypher. Because it will be difficult to incorporate and justify the use of NuCypher in enterprises early on, NuCypher will struggle to attract enterprises on centralized networks. So, the growth of NuCypher will depend on the growth of high value decentralized applications, especially in NuCypher’s early stages. This can potentially be a massive barrier to NuCypher’s short term success if impactful decentralized applications don’t pop up.

Written by Samik Shrotriya, a computer science student at Cornell who is interested in learning more about market research, distributed systems, and reinforcement learning. He wants to use this platform to talk about the things he has learned. Feel free to send him an email!