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How does the encryption work?

Only the person who has your username and Master Password. And that does NOT include the administrators of Netsso. Netsso only stores a one way "hash" of your Master Password inside Netsso. It is a unique digest of your password, but it is one way- i.e. while the password will uniquely create the digest, the digest cannot be wound back to reveal the password. It is a well known cryptographic function. The Netsso administrator, if he tried to, could only see the hash.