The NuCypher Network is a privacy layer for blockchain and Ethereum applications, using proxy re-encryption (PRE) to provide decentralized access controls and key management.

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An Introduction to NuCypher

NuCypher is a decentralized Key Management System (KMS) that uses blockchain technology to allow data owners to share sensitive data with a large number of users in a secure manner. Any number of applications, from a centralized healthcare system to a decentralized content marketplace, can use NuCypher as security infrastructure for sharing data. NuCypher is a layer 2 protocol, a Proof of Stake based work token built on Ethereum.

NuCypher is building cryptographic infrastructure that addresses three primary use cases:

  1. Secrets management: manage secrets, SSH credentials, X.509 certificates, and signing/encryption keys
  2. Dynamic access control: conditionally grant and revoke access to sensitive data to any number of recipients
  3. Secure computation: process encrypted data while preserving the confidentiality of the inputs and results (the pinnacle of privacy-centered data analytics)

Currently, the NuCypher protocol is focused on proxy re-encryption, a process that allows third parties (proxies) to alter a ciphertext which has already been encrypted for one party, so that it may be decrypted by another. The proxies re-encrypt data from the data sender and provide it to the data recipient, all without any risk of having the data exposed.

The threshold proxy re-encryption scheme used by NuCypher is called Umbral. It enables users to securely grant and revoke access to encrypted secrets and data to counterparties using staked worker nodes called Ursulas. Access permissions are part of the underlying encryption, and access can only be explicitly granted by the data owner via sharing policies. The data owner has ultimate control over access to the data. NuCypher can never determine the data decrypted or the underlying private keys.

How NuCypher Works

NuCypher network participants will run worker nodes called Ursulas to which NU (the native token) will be staked. The nodes perform the work of re-encryption and are the key actors in the network. The NuCypher protocol requires access to an Ethereum node for the Ursula worker node to read and write to NuCypher’s smart contracts. Bison Trails provides every Ursula Worker node with a private connection to a dedicated Geth node, maximizing reliability and uptime.

In order to ensure the NuCypher network is able to perform all the re-encryption work demanded by users, nodes must be highly available and allow for people to create long-lived data access policies. NuCypher’s staking economics were established to incentivize node operators not only to participate in the network but remain part of the network.

Nodes are incentivized to continually provide re-encryption services by receiving fees from users (paid in ETH) and participation rewards (paid in NU tokens). Node operators must stake NU tokens to their node and will receive rewards which are earned in proportion to their stake. At first, incentives will mostly come in the form of rewards rather than fees. Eventually, when the network gains users, fees will become a large part of the financial incentive to run a node.

NuCypher’s WorkLock, a novel node distribution mechanism that will be used to launch the network. WorkLock participants lock Ethereum (ETH) to a smart contract, receive NU tokens in order to run NuCypher (Ursula) nodes, and receive fees and rewards in return for strengthening the network. In addition, by running NuCypher nodes and staking the WorkLock NU tokens, all of the original ETH is returned over time. The lockup period for ETH will be six months or less from the launch of mainnet, depending upon the amount of work performed by the node. The more tokens staked to an Ursula node, the more “work” performed, and the faster the locked ETH is returned.

NuCypher will allocate 225,000,000 NU tokens to reward WorkLock participants.

To participate in WorkLock, you must escrow a minimum amount of ETH; the number of ETH will be finalized right before WorkLock begins but will be ~$2000 USD in value. In exchange for that minimum amount, participants will receive 15,000 NU, the minimum stake necessary to run an Ursula node. If a participant decides to lock “bonus” ETH (an amount above the minimum), she will receive more NU tokens based on the total number of participants and the total amount of “bonus” ETH locked by all participants.

The maximum stake any one WorkLock participant can receive is 30,000,000 NU. If a participant submits an escrow of enough ETH to exceed the cap, ETH will be partially refunded to the participant.

All node operators must lock NU tokens to their node in order to participate in the network. To incentivize the acceptance of longer-term access policies, if node operators lock their funds for at least a year, they will receive maximum compensation. Node operators who lock their tokens for a shorter period will receive a lower amount of rewards and will not be eligible to re-encrypt policies that extend beyond the length of the lock-up period.

The minimum lockup is 30 days. Staking for longer than one year, while possible, does not provide greater benefits in terms of earning rewards. Staking rewards are automatically restaked after each period, unless the user has opted out or the period ends. At the end of the staking period, if the Ursula Node did it’s job providing re-encryption services, the stake plus rewards can be claimed.

A lockup period can not change. Users can specify to wind-down their stake instead, running this lockup period down and decreasing rewards as this lockup period approaches 0.

There are two types of slashing on NuCypher: downtime and incorrectly re-encrypting data. Downtime slashing will not be implemented at launch of mainnet. However, there will be slashing for false or incorrect re-encryption at launch. The exact amounts for each successive offense are still being determined.

It is very difficult to falsely re-encrypt on NuCypher; a node must actively try to commit this act or a node must be compromised and the attacker purposefully tries to get the node slashed. If a node gets slashed, the worker will automatically detach to prevent someone getting slashed to 0 in quick succession.

Bison Trails has a proven track record with NuCypher; we managed Ursula Worker nodes since the first federated testnet in November, 2018. We continue to collaborate closely with the NuCypher development team on testing, protocol upgrades, and protocol documentation.

Bison Trails was an active participant in the Cassandra testnet challenges andis running the node with the most staked NU tokens on the network outside of the NuCypher team. We also completed all phases of CASI (Come and Stake It, NuCypher’s Incentivized Testnet).

We have established direct lines of communication with the NuCypher team, and provide economic and technical guidance on an on-going basis. For example, see our delegation smart contract PR feedback; we verbally proposed and merged a PR that an Ursula Worker can be instantiated without a staker address and helped to update and correct core NuCypher documentation. Our Protocol Specialist, Viktor Bunin, helped the team think through the WorkLock and provided feedback on network dynamics, economic policy, slashing penalties, and stake pooling over the last year.

“NuCypher’s upcoming mainnet launch is the culmination of over three years of work towards making privacy-preserving blockchain applications a reality. Bison Trails has been a key contributor--both via running testnet nodes and providing technical feedback on multiple aspects of the protocol. We’re excited for them to continue to play a large role during WorkLock and the subsequent mainnet launch.” —MacLane Wilkison, Cofounder & CEO of NuCypher

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