That's not how it works, though. Rough steps for how a system like this can work (bearing in mind that Mega might be doing it entirely differently): 1) Alice

That's not how it works, though. Rough steps for how a system like this can work (bearing in mind that Mega might be doing it entirely differently): 1) Alice takes file P and hashes it to produce key K 2) Alice encrypts file P with key K to produce file C 3) Alice encrypts key K with key U (her user key) to produce key X 4) Alice sends key X and file C to Mega for storage When Bob does the same steps on a matching file, the only things that differ are key U and key X -- these are his user key, and his user key for the data. That means that Mega can deduplicate file C freely, because they're identical. Note that Mega never knows the hash of the original file -- key K -- or it'd be able to decrypt the files.