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I am developing a Windows 10 Universal Application which has the ability to send files over the local network to other copies of itself on different devices. I will also extend this to remote control one instance of the application from another (limited access).

The applications are sandboxed by default due to the windows runtime API, and files can only be saved in some specific locations (no access to C > windows). Furthermore, users can block any network interactions (done by default) and block individual file transfers (although they can opt in to automatically accept any file)

For the moment, traffic is completely unencrypted and "out in the open". Should I bother with encrypting the traffic somehow? I am thinking that if the network is compromised, it is highly unlikely my own encryption will save the user and malicious users will find their way anyway.

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Whether you should or not isn't really an opinion we can offer: yes you should (or maybe it is). What you really need to do is figure out what risks are present in the interactions between applications.

If the network itself is compromised, that doesn't mean the applications or the users are compromised. It just means an attacker can see traffic over the wires. Encrypting that traffic mitigates any privacy-related problems, but it introduces a few subtler problems like how do you exchange encryption keys, how do you verify the keys if you're using PKI, etc.

That said, if you mean the network as many or all computers on the network are pwned, well, that's a different problem. Encryption might still help, but the problem moves in to the realm of protecting the keys.

So you need to ask yourself: what am I needing to protect against? What am I willing to protect against?

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