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I implemented a similar architecture, but within three weeks http://i.imgur.com/hfoyz.png :)

We never ever store, or transmit over the network the user's master password nor any of its derivatives, therefore we don't nee to encrypt it.

The user's master password is not encrypted, it is used to create the key to encrypt and decrypt user's data, and the encryption key created from the master password, as a derivative of the master password, is never stored or transmitted.

This way, we can assure our users that even us cannot ever access their data.

How are encrypted the users' master passwords ? (because "one key to to encrypt them all" is a bit dangerous, isnt it?)

Some more information here http://goo.gl/YlFkQ but no, each data-key (master) is unique to each user and stored outside of the application and network in an encrypted store, also all PID is encrypted and non-associative. Of course, I would prefer if users didn't want a restore option, however, usability sometimes trumps security :) Lost your password == lost all your data, just doesn't cut it with users IRL (I found).

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