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The title says it all

What is it and how does it help users?

While this is a self answered question, additional inputs especially from hands on experience are welcome

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TL;DR In previous Android versions you risked missing notifications, text messages etc, in case your phone rebooted or restarted for some reason when you didn't notice. Reason being, you had to boot in with your password or PIN for the device and apps in it to communicate notifications. In Nougat, this is overcome by allowing the device to boot (without any security risk) without entering PIN or password and access limited functionality such as notifications. You would however need to sign with your PIN or password for complete access of your device

Source

  • To overcome such problems, in Android Nougat, Google decided to add a new type of system encryption that it calls “File Encryption" This is comprised of two different types of data:

    Credential encrypted data: This data is protected and is only accessible once the device has been fully unlocked via PIN, pattern, or password. In practice, this acts similarly to full-disk encryption in terms of user experience.

    Device encrypted data: This is what’s new in Nougat. It makes certain non-personal data available to the operating system before the user inputs their unlock info. This includes generic system files needed to get the OS up and running in a usable state, allowing Nougat to boot up to the lock screen without any user interaction.

  • With this, developers can also push certain files into this encrypted space, allowing things like alarms, phone calls, and notifications to come through before the device has been fully unlocked. That means no accidentally sleeping in because your phone crashed and rebooted in the middle of the night.

When apps are allowed to run in this “device encrypted” state, they can push data to credential encrypted storage, but they can’t read it—it’s a one-way street.

  • Android’s file-based encryption is also known by a much simpler name: “Direct Boot”. This name, which doesn’t really exist in Android’s menus but was used at Google I/O with the announcement of Nougat.

Related How does Nougat encryption work technically?

Additional Reading: All The New Security Improvements In Android N

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