NuCypher Brief Overview

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NuCypher is a decentralized secret management network where a group of nodes (workers) perform proxy re-encryption to manage permissions on encrypted data instead of a centralized server. It allows safe data exchange without ability for proxies to learn the plain text info. Correctness of worker behavior is guaranteed by staking and cryptographic proofs. Additional token emission incentivizes node operators to maintain high availability infrastructure and in the case of network rules violation a portion of their holdings will be slashed.

Current state and market potential

NuCypher mainnet successfully launched on 15th October 2020 allowing token holders to stake their NU.

Privacy of sensitive data is a vexed problem and services provided by NuCypher project are attractive and valuable not only in crypto space. The highest growth of data breaches in USA was in the healthcare sector demonstrating 80% increase from 2017 to 2019 including the transmission of confidential data without proper encryption.

Enterprises also are seeking ways to avoid data leaks and securely manage and share sensitive data. The Global Key Management as a Service Market market size is expected to grow from $363 million in 2018 to $1,28 billion by 2023 and is estimated to reach $2,29 billion by 2025 during the period 2019–2025.

Token allocation

NuCypher raised $750k in 2016 ; $4.3 million in 2017 and $10,7 million in 2018. The overall token allocation showed in a diagram below.

Staking economics

In order to participate in the network as a worker and perform re-encryption, node operators have to lock NU tokens. At the start rewards from providing re-encryptions might be low so until the project gets traction, node operators will be incentivized mostly by emission of new tokens. Holders can delegate their funds and earn a share of rewards in proportion to their stake.

Compensation is higher when tokens are locked for a longer period. To get maximum compensation stakers have to lock their funds for at least a year to be allowed to accept policies with longer terms. Shorter commitment will result in lower rewards for participants and they will not be allowed to provide re-encryption if the length of a particular policy is higher than chosen lock-up period. Staking since the beginning of mainnet with compounding of rewards also will result in higher returns. The whole stake can be split into sub-stakes where each will have its own lock-up period.

In existing representation only one staker can delegate to a worker in near future, staker can be a smart contract that accepts delegations from various addresses. We believe in future adoption of NuCypher and will provide the long term staking maximizing staking rewards.

Native token

NuCypher token NU is ERC20 token the main purpose of which is to act as a staking token in the network with limited liquidity and low volatility. Amount of provided re-encryptions will be proportional to stake which is guaranteed to be locked at the end time of the policy. Node operators with higher stake presuming higher loss in case of bad behavior and ability to accept policies with longer terms.

NuCypher based on Ethereum blockchain means that users should have ETH on the worker node’s address to pay tx fees. Workers also share service fees paid by end users in ETH for providing re-encryptions.

Over 350 000 ETH were locked in the smart contract by participants to take part in WorkLock token distribution model proposed by NuCypher team.

Slashing risks

There are two potential slashing conditions:

At network genesis, the protocol will be able to detect and attribute instances of incorrect re-encryptions. If there are many sub-stakes and misbehavior occurs, unlocked tokens which do not participate in staking will be slashed in the first place and then ascending sub-stakes with lower lock-ups.

A false re-encryption is not like a double-sign. Correctness of a re-encryption can be proved via a zero-knowledge proof. If users receive incorrect re-encryption, they can provide this proof to the network, which will result in the node getting slashed. For each violation, 2×10−18 NU tokens will be deleted from the offender’s stake.

In the future, slashing parameters can be changed by the Decentralized Autonomous Organization (DAO) that is managed by NU stakeholders who operate nodes. It makes NuCypher a community driven project from the very beginning.

At network launch slashing for worker unavailability is turned off until it will be enabled by the DAO if needed. Stakers will not receive inflation rewards for any period the node is offline. A worker that doesn't timely apply updates and constantly experiencing downtime will also miss rewards.

About P2P Validator

P2P Validator is a world-leading non-custodial staking provider securing more than $3 billion by over 10,000 delegators across 25+ high-class networks. Our team has close connections with NuCypher and we have participated in the incentivized testnet since the beginning. P2P Validator invested its own funds in NuCypher project in 2017 and intends to support the network in the long term.

Useful NuCypher resources

Want to stake NU with us? Alexey will be happy to help. Contact [email protected] to get personal assistance.

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Alex Bondar

Research & Analytics at p2p.org.

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