There's an issue with passwords/keys not sent to the server: what if the user forgets the password?
No "Forgot your password?" functionality available (reset token), since the server does not store password (hashed or otherwise).
No "Forgot your password?" functionality available (reset token), since the server does not store password (hashed or otherwise).
You should never store the users password.
In addition the reset password is not possible when the data is encrypted on the client side. This is how TrueCrypt works - if you forget the password, all your data is lost.
"Users are able to login to servers, and encrypt all their data, without ever exposing their password or encryption keys to the server."
"And if the user's data on the compromised server is encrypted using the user's keypair, then even the users' data is still protected."