NuCypher, a privacy layer for distributed systems and decentralized applications, has raised US$4.3 million in a token pre-sale from 13 cryptofunds and venture capital firms. The round was led by Polychain Capital with participation from Michael Novogratz’s Galaxy Digital Assets Fund, FBG Capital, Compound VC, Satoshi Fund, and Blockchain Korea Partners, among others.

NuCypher, a Y Combinator alumnus, is a security and encryption platform for distributed systems including blockchain, Big Data, cloud and the Internet-of-Things.

Its core technology, called proxy re-encryption, is a type of public-key encryption that allows a third-party proxy to transform ciphertexts from one public key to another (using re-encryption keys) without learning anything about the underlying message. It is a way for a user to share encrypted data with another user without sharing the private key or having to decrypt the data first.

“Distributed systems, including blockchain, are often characterized by an N-to-N data sharing pattern in which many different nodes produce, operate on, or relay data. This poses a challenge for traditional public-key encryption, which works best for 1-to-1 communication,” the company says. “Proxy re-encryption is far more scalable for these N-to-N data sharing scenarios, allowing for both access delegation and revocation.”

NuCypher has already commercialized its platform and technology. Customers include MediBloc, which is creating a patient-controlled medical records system and using NuCypher to encrypt medical records and share them with valid recipients like doctors and hospitals; Datum, which is using NuCypher to create a user data marketplace where regular people can auction their personal data off to advertisers; and Wolk, which is using the technology to create an end-to-end encrypted database on top of Swarm.

The company said it is now building the infrastructure stack that will underpin “the coming wave of decentralized applications.”

“NuCypher is part of that core infrastructure, enabling developers to store, share and manage private data on public blockchains. We’ve been very diligent in building out the NuCypher network prior to our token sale so that it is available and usable from day one. “A year from now, NuCypher will power many decentralized applications, from data exchanges and marketplaces to end-to-end encrypted databases to healthcare apps.”

NuCypher will hold its public initial coin offering (ICO) in early 2018. The NuCypher token will be used as an economic incentive to ensure correctness of computation.

Miners (aka re-encryption nodes) in the NuCypher network will be required to stake NuCypher tokens as collateral. If a node misbehaves or goes offline, it can be challenged and forfeit it stake. On the other hand, if a node behaves correctly, it can earn fees and block rewards in proportion to its stake.